A New Era of Water Governance in China — Thematic Report Watershed A New Era of Water Governance in China — Thematic Report Watershed ©2018 The World Bank International Bank for Reconstruction and Development The World Bank Group 1818 H Street NW, Washington, DC 20433 USA DISCLAIMER This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Please cite this work as follows: World Bank. 2019. “Watershed: A New Era of Water Governance in China — Thematic Report.” World Bank, Washington, DC. Cover and interior design: Francis Gagnon, Voilá Information Design, Montreal. ABOUT THE WATER GLOBAL PRACTICE ABOUT THE DEVELOPMENT RESEARCH CENTER The World Bank Group’s Water Global Practice brings The Development Research Center of the State Council together financing, knowledge and implementation (DRC) is mainly responsible for conducting research on in one platform. By combining the Bank’s global strategic and long-term issues related to economic and knowledge with country investments, this model social development in China, as well as key challenges generates more firepower for transformational related to reforms and policy options, providing advice solutions to help countries grow sustainably. to the CPC Central Committee and the State Council. Please visit us at www.worldbank.org/water or follow Please visit us at http://en.drc.gov.cn. us on Twitter at @WorldBankWater. Contents Foreword vii Acknowledgments ix Chapter 1:  Overview, Tasks, and Goals of Water Governance in China 1 Background 1 Research Objectives 1 Context and Institutional Environment 1 Historical Lessons of China’s Water Governance 2 Successes and Problems 3 Conclusions and Suggestions 5 Acknowledgments 8 Chapter 2:  China’s Water Security and Existing Problems 9 Background 9 Research Objectives 9 Evaluation Methods and Analysis 10 Conclusions and Suggestions 14 Acknowledgments 16 Chapter 3:  Advancing Water Quality Markets in China 17 Background 17 Research Objectives 18 Analysis and Summary 18 Conclusions and Suggestions 21 Macroeconomic Effects of Water Scarcity and Red Lines in China: Results from an Chapter 4:  Integrated Regional CGE Water Model 23 Background 23 Research Objective 24 Issue Analysis and Summary 24 Conclusions and Suggestions 27 iv WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Re-Examination of the Strictest Water Resources Management System Chapter 5:  and Basin Water Allocation in a New Era 31 Background 31 Research Objectives 31 Analysis and Summary 32 Conclusions and Suggestions 35 Acknowledgments 35 Chapter 6:  Water Rights Allocation and Trading 37 Background 37 Research Objectives 38 Analysis and Summary 38 Conclusions and Suggestions 41 Acknowledgments 42 Chapter 7:  Best Practices in Cost-Benefit Analysis for Water Investments 43 Background 43 Research Objective 44 Analysis and Summary 44 Conclusions and Suggestions 46 Chapter 8:  Policies on Water Prices, Taxes, and Fees and Their Implementations 49 Background 49 Research Objectives 49 Analysis and Summary 50 Conclusions and Suggestions 53 Acknowledgments 54 Chapter 9:  Flood Risk Management and Flood Insurance 55 Background 55 Research Objectives 55 Analysis and Summary 56 Conclusions and Suggestions 59 Acknowledgments 60 Chapter 10:  China’s Water Ecological Compensation and Governance 61 Background 61 Research Objectives 62 Analysis and Summary 62 Conclusions and Suggestions 65 Acknowledgments 65 v Chapter 11:  Legislation Process and Improvement Proposals for China’s Water Governance 67 Background 67 Research Objectives 68 Analysis and Summary 68 Conclusions and Suggestions 70 Acknowledgments 74 Chapter 12:  China’s Administrative System and Reform for Water Governance 75 Background 75 Research Objectives 76 Analysis and Summary 76 Conclusions and Suggestions 80 Acknowledgments 81 Technological Innovation and Information Platform Construction Chapter 13:  for China’s Water Governance 83 Background 83 Research Objectives 84 Analysis and Summary 84 Conclusions and Suggestions 88 Acknowledgments 91 Reference 91 Chapter 14:  Introducing Public-Private Partnerships into China’s Water Governance 93 Background 93 Research Objectives 94 Analysis and Summary 94 Conclusions and Suggestions 97 Acknowledgments 98 Comprehensive Research and Systematic Design of China’s Chapter 15:  Water Governance System 99 Background 99 Research Objectives 99 Analysis and Summary 100 Conclusions and Suggestions 103 Acknowledgments 105 Boxes 7.1 Example of CBA with Ecosystem Service Valuation in China 47 7.2 Who Should Perform the Cost-Benefit Analysis 47 vi WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT 13.1 Xinjiang Tianye Co. Promotes Agricultural Water-Saving Technology of Mulched Drip Irrigation 85 13.2 The SMART Changsha Mode of Rural Wastewater Treatment 87 13.3 Intelligent Pipeline Network Management System and Its Application in Shanghai World Expo Park 87 Figures 3.1 Water Quality Credit Trades 18 3.2 Common Design Steps 21 4.1 Dynamic Computable General Equilibrium Model 24 4.2 Schematic Illustrating Basic Structure of the CWRM Based on the BPU Concept 25 4.3 Estimated Regional Water Shortages, in Cubic Kilometers, 2030 28 15.1 Framework for the China Water Governance System 100 Maps 2.1 Spatial Distribution of China’s Water Security, by Province and Basin, 2018 and 2030 15 4.1 Map of Basin-Province Units (BPUs) with BPU Identifiers in the 10 First-Order River Basins in China 26 Tables 2.1 Index System (with Weights) of Water Security Evaluation, China 11 4.1 Policy Scenarios for Assessing Economic Effects of Water Scarcity and Red Lines 27 6.1 Preconditions for Water Rights Allocation 39 6.2 Preconditions for Water Rights Trading 39 6.3 Outlook of the CWE 41 vii Foreword Victoria Kwakwa Vice President for East Asia and the Pacific The World Bank G lobally many countries are placing unprecedented of reforms that shifted the country from a centrally pressure on water resources. The global planned to a market-based economy with Chinese population is growing fast, and estimates show characteristics. GDP growth has averaged more than that with current practices, the world will face a 40% 7 percent a year over the past decade—the fastest shortfall between forecast demand and available sustained expansion by a major economy in history— supply of water by 2030. Furthermore, chronic water and has lifted more than 800 million people out of scarcity, hydrological uncertainty, and extreme weather poverty. events (floods and droughts) are perceived as some of the biggest threats to global prosperity and stability. This rapid economic ascendance to the upper middle- income status achieved today has brought with it many To strengthen water security against this backdrop of challenges. These include rapid urbanization, uneven increasing demand, water scarcity, growing uncertainty, regional development, challenges to ecological and greater extremes, and fragmentation challenges, environmental sustainability, external imbalances and the World Bank is supporting clients to invest in high inequality. To meet these challenges significant institutional strengthening, information management, policy adjustments are required to ensure a sustainable and infrastructure development. Institutional tools such growth trajectory. as legal and regulatory frameworks, water pricing, and incentives are needed to better allocate, regulate, and These policy measures are articulated through the conserve water resources. Information systems are concept of ‘ecological civilization’ embedded in China’s needed for resource monitoring, forecasting, decision 13th Five-Year Plan (2016-2020). This addresses many making under uncertainty, and systems analyses. of these challenges and highlights the development of Investments in innovative technologies for enhancing services and measures to address environmental and productivity, conserving and protecting resources, social imbalances. It includes specific targets to reduce recycling and developing non-conventional water over-exploitation of water resources and pollution, sources should be explored in addition to seeking increase energy efficiency, improve access to education opportunities for enhanced water storage. and healthcare, and expand social protection. Water is central to the realization of China’s sustainable The China Water Governance Study represents a major economic prosperity and has the potential to provide contribution to the proposed policy and institutional important contributions to the global discourse. Despite reforms in China’s water sector and builds on a long being the world’s second-largest economy and most history of collaboration between the World Bank and populous country, China possesses only 6 percent the Development Research Center of the State Council. of the world’s freshwater resources with availability This collaboration leverages the Chinese experience per capita one-fourth the global average. To address to combine with the Bank’s global knowledge in these challenges the Government invested more providing a framework for enhancing water governance than RMB 717.6 billion in 2017 alone and yet scarcity, in support of sustainable social and economic pollution, and flooding continue to threaten sustainable development. development. The Chinese experience in managing the development The commitments to development of an era of of water resources also has important lessons for ecological civilization reflect the next generation of other transitioning economies and informing efforts reforms to reposition the structure of the economy. to address global risks to economic progress, poverty China has experienced a period of rapid economic eradication, peace and security, and sustainable growth and social development since the introduction development. viii WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Wang Yiming Vice Minister Development Research Center of the State Council of the People’s Republic of China C hina is a country with serious water scarcity and contribution to enhance global water governance frequent water related disasters, such as floods through Chinese wisdom. and droughts. Historically, each of the Chinese Continuous innovation and adaptation of the dynasties has paid significant attention to water governance mechanisms, through implementation of management, culminating in a wealth of knowledge institutional measures and incentives are helping to and experience which continues to make important better allocate, regulate, and conserve water resources. contributions to national development and the global These are also providing exciting opportunities to drive agenda. In a sense, Chinese history is also a history of innovative technologies for improving productivity, as water governance. well as conserving and protecting environmental and The China Water Governance Study jointly carried out ecological functions. by the Development Research Center of the State The China Water Governance Study provides an Council and the World Bank, which reflects important important analysis and informs the institutional contributions from various ministries from across the reforms intended to enhance the process of continuous Chinese government and the joint efforts of both improvement in the management of water resources Chinese and international experts, represents another in China. After reading through all the reports, it is important contribution to the continued development clear that it provides a comprehensive review of key of institutions for economic and social development in challenges and a systematic evaluation of the current China. context of water management. In doing so, the study China continues to attach importance to the makes an important contribution to enhancing the development of an ecological civilization and green framework for China’s water management and provides development as it embarks upon a new era of a practical set of tools and policy guidance. We believe economic development. This is centered on sustainable these recommendations will be substantially helpful to resource management, environmental protection further enhance the level and capacity of China’s water and ecological conservation with sustainable water governance. management central to the realization of China’s Together, these measures make up a new water sustainable economic prosperity. A clear direction governance strategy that will support China’s efforts to for the governance of water in China is found in the move toward a higher quality, more environmentally 16 words of wisdom issued by President Xi Jinping, conscious economic structure. However, water specifically in relation to the “priority on water-saving, governance is a continuous process, as is the process spatial equilibrium, systematic governance, and the of research and refinement. The epistemology and combined efforts of government and the market”. methodology of water governance in China needs to China’s water governance faces a rapidly changing be continuously revisited. Let us make a joint effort context with increasingly serious challenges, with more and take the opportunity of an ecological civilization complicated problems and more ambitious goals. In and green development to fully absorb and integrate this context, the joint study provides practical advice the experience of water governance in China and to improve water management in the new era of an internationally. Through progressive advancement and ecological civilization. China’s experience and strategy enhancement, China will continue to play an important for the governance of water also has important and effective role in shaping the global water lessons for other countries and will make an important governance system. ix Acknowledgments T his report represents the culmination of joint of policy recommendations was overseen by an research conducted by the Development Research Advisory Committee comprising Wang Hao (Institute Center of the State Council of the People’s Republic of Water Resources and Hydropower Research), Jane of China (DRC) and the World Bank that builds on a Doolan (University of Canberra), Fu Bojie (Chinese long history of cooperation and collaboration. The Academy of Sciences), Claudia Sadoff (World Bank), objective was to provide Chinese policy makers with Xia Qing (Chinese Research Academy of Environmental detailed institutional and policy options to support Sciences), and Patricia Mulroy (University of Nevada, water security and sustained economic development. Las Vegas). The team also discussed with and obtained The report fills a critical gap highlighted in the World valuable advice from other experts within the World Bank 2013 China Country Water Resources Assistance Bank, officials from the Government of the Peoples Strategy by proposing legal, technical, and institutional Republic of China, along with universities and non- changes to the current framework for water resource government organizations working on water resources management. A new approach to the governance of related research in China. water is recommended that is aligned with the goals The water governance work was initiated by Ousmane of an ecological civilization and its aims to balance Dione (then Practice Manager and now Country Director economic growth against increasing water demand for Vietnam) and completed under the guidance of under conditions of water scarcity. By closely examining Sudipto Sarkar (Practice Manager, East Asia and the key water management issues in the context of China’s Pacific Region, Water Global Practice); and Gao Shiji rapid development, the report also aims to provide (Director of the Institute for Environment and Natural lessons relevant to other countries facing similar water- Resources of the DRC). The Thematic Reports were related challenges. prepared by a joint team from the World Bank led by The team benefited from comments and discussions Winston Yu (Senior Water Resource Specialist), Liping with colleagues within the World Bank, officials from Jiang (Senior Water Resource Specialist) and Marcus the Government of China, and representatives from Wishart (Lead Water Resource Specialist) and including non-governmental organizations and universities Scott Moore, Qi Tian, Xiawei Liao; Regina Rossmann, working on water resource issues. The research was Si Gou, Dan Xie, Liteng Dong, and Anqi Li (World Bank); carried out under the leadership of Victoria Kwakwa and the Government of the Peoples Republic of China (Vice President for East Asia and the Pacific), Guangzhe led by Gu Shuzhong (Task Team Leader from the DRC Chen (Senior Director of the Water Global Practice), of the State Council), and including Li Weiming, Jiwen and Bert Hofman (Country Director for China) from Chang, and Zhou Hongchun (DRC of the State Council); the World Bank and Vice Minister Wang Yiming from Li Jing, Zhong Yuxiu, and Wang Yining (DRC of the the DRC along with his ministerial colleagues from the Ministry of Water Resources); Jia Shaofeng (Chinese Government of the Peoples Republic of China. Guidance Academy of Sciences); and Wang Jianhua, Ding was provided during implementation by a Steering Liuqian, and Zhao Yong (Institute of Water Resources Committee comprising Wang Yiming (DRC), Guangzhe and Hydropower Research of the Ministry of Water Chen (World Bank), Bert Hofman (World Bank), Guan Resources). The team also acknowledges the strategic Fengjun (Ministry of Land and Resources), Gu Mengzuo guidance and comments provided by Bert Hofman, (Ministry of Water Resources), Liu Weihua (Ministry of Jennifer Sara, Bekele Debele, Harold Bedoya, Richard Finance), Zhang Linwei (Ministry of Housing and Urban- Damania, Greg Browder, Ximing Zhang, Abedalrazq Rural Development), Gao Shiji (DRC), and Wang Jiuchen Khalil, and Irene Bescos. Their contributions have (Ministry of Agriculture). In addition, the development helped to enhance the quality. x WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Each of the chapters presented here is based on Topic 11: Legal Reform for Water Governance was a series of 15 Thematic Reports prepared by the prepared by the Development Research Center of the following teams. These provided the basis for the State Council and leadership of Chang Jiwen; joint identification of key priority reforms by the World Bank and the DRC that were bought together Topic 12: China’s Water Management Administrative and published in an accompanying Synthesis System and Its Reform was prepared by the Report (https://openknowledge.worldbank.org​ Development Research Center of the State Council /handle/10986/31928). under the leadership of Gao Shiji and Chen Jianpeng; Topic 1: Overview of Water Governance in China was Topic 13: Technical Innovation and Development of prepared by the Institute for Environment and Natural an Information Platform in China was prepared by the Resources of the Development Research Center of the Development Research Center of the State Council State Council under the leadership of Li Weiming and under the leadership of Zhou Hongchun; Gu Shuzhong; Topic 14: Public Private Partnerships and Water Topic 2: Evaluation of China’s Water Security Status Governance in China was prepared by the Development and Issues was prepared by the Geographic Science Research Center of the Ministry of Water Resources and Resources Research Institute under the Chinese under the leadership of Wang Yining; Academy of Science and leadership of Jia Shaofeng; Topic 15: Summary and Overall Design of China’s Water Topic 3: Advancing Water Quality Markets in China Governance System was prepared by the Development was prepared for the World Bank by the Willamette Research Center of the State Council under the Partnership and the World Resources Institute under the leadership of Gu Shuzhong. leadership of Bobby Cochran; These thematic study team reports and Topic 4: Macro-Economic Impacts of Water Scarcity and recommendations were reviewed by both the Redlines in China: Results from an Integrated Regional Advisory Committee and the Steering Committee. CGE Water Model was prepared for the World Bank These discussions emphasized key issues for water by the International Food Policy Research Institute in governance in China, including the need for a Beijing under the leadership of Kevin Chen; stronger legislative foundation for water governance; enhanced basin-scale governance institutions; Topic 5: Re-Examining the Three Red Lines Policy was harmonization of existing policy tools, such as water prepared by the Institute of Water and Hydropower permits and water rights; better information and Research under the Ministry of Water Resources and data-sharing; and the need to promote ecosystem leadership of Wang Jianhua; resilience. Based on these consultations and Topic 6: Water Rights Verifications and Transactions was discussions, a final set of 15 key recommendations prepared by the Development Research Center under have been put forward. These recommendations Ministry of Water Resources and leadership of Li Jing; form the core of the accompanying Synthesis Report. Each priority area is the subject of a separate chapter Topic 7: Best Practices in Cost-Benefit Analysis for focusing on the rationale for each of the policy Water Investments was prepared for the World Bank recommendations, drawing on research completed by by Mark Radin at the University of North Carolina each study team. In addition, a series of policy notes Chapel Hill; were prepared by the Development Research Center Topic 8: Water Prices, Taxes, and Fees was prepared by of the State Council for the Chinese government. the Development Research Center of the Ministry of These policy notes were submitted by Development Water Resources and the leadership of Zhong Yuxiu; Research Center to senior policy makers at the National People’s Congress held in March 2018. Topic 9: Flood Risk Management and Protection was Several of the key study results from these policy prepared by the Institute of Water Resources and notes (including improvement of the strictest water Hydropower Research under the Ministry of Water resources management system, promotion of water Resources and leadership of Ding Liuqian; right reforms, and establishment of a flood insurance Topic 10: Ecology Compensation and Governance was system) were also submitted to senior policy prepared by the Institute of Water Resources and makers of the State Council by Dr. Gu Shuzhong, as Hydropower Research under the Ministry of Water a member of the National Committee of Chinese Resources and leadership of Zhao Yong; People’s Political Consultative Conference (CPPCC). C HAPT E R 1 Overview, Tasks, and Goals of Water Governance in China Background it is important to put forward the next-step goals and tasks of China’s water governance, adapting to the new The context and institutional environment for water contexts and addressing key problems. governance can vary substantially. Therefore, water governance may have different meanings and foci in different times and places. Many definitions and studies Research Objectives related to water governance exist both internationally The first research objective is to review and summarize and within China. It is necessary to define the historical lessons of the role of water governance content of water governance scientifically, based on in China’s national security, as well as its effects a systematic review of the literature, to provide an on the government’s ruling concepts and public analytical framework and decision support for research awareness, by scientifically defining its core content. and implementation of water governance both within Next, the research should objectively study and China and globally. China’s water governance has a long systematically understand China’s water governance’s history. Water governance is closely related to national status, achievements, and problems, as well as the and regional security, governments’ ruling concepts, new contexts and new requirements during this and public concerns. Its effects should be systematically transformation period. The third research objective is reviewed and its lessons should be summarized as a to put forward the main next-step tasks and goals for reference for water governance research and practice. China’s water governance. China is entering a new era. The context for water governance in China is facing substantial and deep Context and Institutional changes, and opportunities and challenges exist in parallel. Therefore, objective studies and systematic Environment understandings are needed. To ensure national water Water governance is defined as all water-related security, accelerate building the water governance stakeholders taking actions, including legal, economic, system, and modernize water governance capacity, administrative, and technical means, dialogues, and This chapter is based on a summary of the Thematic Report prepared by the Institute for Environment and Natural Resources of the Development Research Center of the State Council under the leadership of Li Weiming and Gu Shuzhong. 2 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT consultations, to systematically plan water exploitation, contemporary water issues are compounded by both utilization, allocation, conservation, and protection in natural and human factors that require innovative various water-related subsystems, such as resources, approaches to water governance. environment, ecology, engineering projects, and (3) Water governance requires strong organizational water supplies, according to natural characteristics of arrangements. From Water Supervisor and Water water resources and hydrological cycles, as well as Governor in the Qin and Han Dynasties to Water formal institutions (for example, laws, regulations, Authority and Water Governor in the West Jin policies, rules, and standards) and informal institutions Dynasty, Ministry of Engineering and Ministry of (for example, traditions and customs). Besides, the Water Conservancy in the Sui Dynasty, Yellow River government, diverse actors such as enterprises, Supervisor in the Song Dynasty, General Governor organizations, and the public are involved. In addition, of Rivers in the Ming Dynasty, and General water governance has a broader scope than traditional Supervisor of Rivers in the Qing Dynasty, capability water management. Water governance is defined by and performance on water governance has been the public sphere instead of only government authority. an important indicator of an official’s performance. Therefore, legal, economic, administrative, and technical means, dialogues, and consultations should be combined (4) Water governance is the responsibility of the systematically to deal with complicated water issues. public. Water governance has required joint efforts and cooperation from all societal actors. Self-management is particularly encouraged. Besides mandatory national laws, regulations, and standards, (5) Water governance requires clear regulations. the source of power for the institutional foundation of Examples include Water Conservancy water governance includes nonmandatory contracts, Management Regulation of the Tang Dynasty, consultation, and cooperation. Power should be realized Irrigation and Water Conservancy Law by Wang both horizontally and vertically, and should be bidirectional Anshi, Decree on River Water Hazard Prevention instead of only top-down, through consultation and of the Jin Dynasty, and Water Conservancy Law cooperation. Water resources, environment, ecology, during the People’s Republic of China, as well as engineering, supply, and other affairs should be governed the annual repair and maintenance system, water holistically. (This study is not concerned with water conservancy official system, budget management diplomacy governance because of its sensitivity.) system for flood prevention, flood and other disaster reporting systems, and disaster relief and grain storage system. Historical Lessons of China’s (6) Water governance requires ensured investment, Water Governance and its engineering projects should be advanced Water governance has been an important public issue reasonably. Water governance has been an throughout the history of China. From the perspective investment and has required labor-intensive, of government ruling, eliminating water hazards and systematic work that has long durations and involves developing water conservancy projects have been various social and economic aspects. Therefore, the major issues in China’s national administration. Failure or development scale and rate should be advanced negligence of water governance has resulted in decline reasonably based on demand forecasting. and fall of political powers and consequent regime (7) Water governance must be facilitated scientifically, changes. To some extent, Chinese history is a history with quality as the first priority. Some ancient of water governance. From the perspective of national water engineering projects have functioned into security, water governance has laid the foundation to modern times because of their strict quality- improve China’s water security and hence underpins assurance mechanisms. For example, the ecological, economic, social, and even national security. Ming Dynasty enforced a mandatory “quality There are ten lessons from the history of water responsible mechanism”; if accidents happened, governance in China: responsible people were held accountable, sometimes even facing the death penalty. (1) Water governance is indispensable to governing a (8) Water governance needs to recruit, use, and nation. Throughout Chinese history, all successful cultivate talents. According to records, water rulers have prioritized water governance. conservancy talents in China historically have (2) Water governance content depends on time and been trusted, respected, recommended, and location. Water hazards were often natural events widely acknowledged. Talents are indispensable in ancient times, and water governance has to eliminating water hazards from rivers and focused on responding to flood and drought events, especially to the development of large- or agricultural irrigation, and canal transport. In contrast, medium scale water conservancy projects. 3 (9) Water governance needs to address both Water ecological protection has been strengthened. symptoms and root causes of problems. Water Water Function Zoning of Major Rivers and Lakes in governance has shifted from addressing the China (2011–2030) has been approved. The pollutant- symptoms to addressing the roots, manifested carrying capacity of major water functional zones has by the transformations along the chain of been studied and verified. Safety compliance projects avoid, block, dredge, guide, sand control to for 175 important drinking water sources have been comprehensive water governance. started. Groundwater overexploitation areas have been identified, and groundwater exploitation restriction (10) Water governance requires comprehensive plans have been formulated. Ecological restoration and planning and coordination. For example, flood ecological water diversion have been advanced. prevention projects not only have to address flood prevention in a river basin but also have to pay Significant effects have been seen in flood prevention attention to water drainage issues in midstream and drought control. Flood prevention structure and downstream. Similarly, water conservancy has been established in seven major river basins projects need to pay close attention to water comprising blocking, drainage, detention, and storage and sand blocking, siltation mitigation, diversion projects, such as reservoirs, dams, and flood comprehensive utilization of electricity, irrigation, storage areas. Compared with the 11th five-year transport functions, and so forth. period, casualty and missing victims, disaster-affected populations, and disaster-stricken areas because of flooding events have decreased by 64, 38, and Successes and Problems 28 percent, respectively. The number of casualties and missing individuals has dropped to a record low Achievements of China’s since 1949. Water Governance Construction of water engineering projects has been Water security has been regarded as national security. accelerated. Basin-level and regional water resource The government has established “Priority on water- distributions have been improved. As mentioned saving, spatial equilibrium, systematic governance, earlier, flood prevention structure in major rivers and and the combined efforts of government and the lakes has also been improved. Wastewater treatment market” as water governance guidelines in the new facilities have been built in large and medium cities. era. The government has issued Opinions of the State Rural drinking water safety projects have been Council on Implementing the Strictest Water Resources completed. For irrigation, 50000 square kilometers Management System (also known as the Three Red of effective irrigation area has been newly added Lines policy) and Action Plan of Water Pollution from 2011 to 2015, and 80000 square kilometers of Prevention and Treatment. high-efficiency water-saving irrigation area has been developed. The most stringent water resource management mechanism has been preliminarily established. The Significant progress has been made in terms of indicators of the three red lines on capping total water water supply capacity. National total capacity was use, improving water efficiency, and controlling water 618 billion cubic meters in 2015, increased by almost pollution have been established at provincial, city, and five times from when the People’s Republic of China county levels. Annual evaluations have been conducted. was established. Urban water supply coverage has Water use per 10,000 Chinese yuan of industrial value exceeded 97 percent. Water demands for living have added and gross domestic product (GDP) decreased been basically met. Rural water supply has reached from 90 and 150 cubic meters, respectively, at the end 76 percent, and the population with a centralized of the 11th five-year period (2006–10) to 61 and 105 water supply has exceeded 82 percent. In addition, cubic meters in 2015 (at the 2010 price), which further 304 million rural residents and 41.52 million students reduced by 7.20 and 7.60 percent by 2016. Farmland and faculties in rural schools have access to safe irrigation efficiency has increased from 0.50 at the end drinking water. Thus, drinking water safety in rural of the 11th five-year period to 0.54 in 2016. areas has almost been reached. Progress has been made in terms of water pollution Positive results have been achieved in key reform prevention and control. Command and control areas. Social capitals are encouraged and guided instruments include discharge standards, total to engage in the construction and operation of discharge cap, pollution permits, and limited time for important water conservancy projects, water treatment. Market-based instruments have also been pollution prevention and control, and water ecological explored and improved. Technologies and policies have restoration projects. Comprehensive reform pilot been gradually improved. The accumulative amount of programs have been facilitated on rural water pricing, the main water pollutants has stabilized. water rights registration and trading, and trading of 4 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT pollution permits. The river chief system has been 61.3 percent. Among nine key gulfs in China, water enhanced. Permission procedures for key water projects quality of six is rated “poor” or “very poor.” In the have been streamlined. Institutional reform of the future, both water use and wastewater discharge are management of water engineering projects has been expected to keep increasing, while agricultural and initiated. Project tendering and bidding have entered unconventional pollutants are expected to increase the market, and a credit system for market players has rapidly. Water pollution is further shifting from single been launched. pollutant to compounded pollution, with more complicated pollutants and increased difficulty for Rule by law has been strengthened in water prevention and control. governance. The Environmental Protection Law, Water Pollution Prevention and Control Law, and Water Water ecological damage is severe. Natural ecological and Soil Conservation Law have been amended spaces, such as wetlands, coastal zones, lakesides, and officially come into effect. Taihu Lake Basin and riversides, are continuously decreasing, which has Management Regulations and South-North Water resulted in reduced conservation capacity of water Diversion Project Water Supply and Use Management sources. According to the State Council Announcement Regulations have been promulgated. Proactive steps on Issuing Water Pollution Prevention and Control have been taken in comprehensive law enforcement Action Plan (Decree No. 17, 2015), the wetland area concerning river-lake boundary determination and in the Three River Plain has decreased from 50,000 delimitation of water conservancy projects. Supervision square kilometers in 1949 to 9,100 square kilometers. and law enforcement have also been strengthened for The main wetland area in the Haihe River Basin has sand excavation along watercourses and administration decreased by 83 percent. The number of lakes directly of rivers and lakes. connected to the Yangtze River along its middle and lower reaches has reduced from more than 100 to Existing Problems Facing only 2, Dongting Lake and Boyang Lake, which are China’s Water Governance also shrinking. Both the size of coastal wetland and the biodiversity of offshore waters have significantly Acute water supply-demand conflicts exist. China has decreased, with severe degradation of fishing low water resources per capita, amounting to about resources. The retention rate of the natural coastline 28 percent of the world average. Water efficiency is has fallen under 35 percent. Moreover, the area of soil low; thus, a large amount of water is wasted. Water erosion has reached 2.95 million square kilometers, use per unit of industrial value added is two to three accounting for approximately 30 percent of China’s times global advanced levels. Effective irrigation territory. The groundwater overexploitation zone has efficiency is 0.52, which is far behind the world reached 230,000 square kilometers, causing severe advanced levels of 0.70 to 0.80. Some regions are ecological problems, including land subsidence and suffering from overexploitation of water resources that seawater invasion. has exceeded their reproducible ability. Meanwhile, rapid urbanization and industrialization have Water project construction and management are exacerbated water supply-demand conflicts, and this lagging. Problems such as flood hazards, wastewater trend is expected to continue. treatment, and lack of engineering projects remain prevalent. Operation and management of water Water environment needs improvement. According to projects are unsatisfactory, with potential negative data from the Ministry of Environment and Ecology, effects on the project safety. Particularly pronounced China has heavy pollutant loads from industrial, challenges include management of medium and small agricultural, and domestic wastewater discharges. rivers, construction of farmland irrigation projects, In 2015, the total chemical oxygen demand (COD) insufficient investment in rural drinking water safety discharge amounted to 22.24 million tons and projects, inadequate wastewater treatment capacity ammonia nitrogen discharge was 2.30 million tons, far in urban and rural regions, and high risk rate of small exceeding the environmental carrying capacity. Among reservoirs, which require increased efforts in addressing all national surface water controlled sections, nearly these specific issues. Improvement is needed in one-tenth (8.8 percent) has lost their water utilization ecological and geological safety of major water functions (poorer than class V); 22.9 percent of key projects. A safety warning system and an accountability lakes (reservoirs) are in a state of eutrophication. system are to be established and strengthened. Water in numerous rivers and channels flowing through cities and towns is black and odorous. Pollution Secure water supply capacity is insufficient in both of drinking water occurs at times. Among 5,118 urban and rural regions. First, compared with rapid groundwater quality monitoring points throughout the industrialization and urbanization, centralized water country, the “poor” and “very poor” ratings add up to supply capacity is generally lagging behind, with the 5 conflict between water supply and demand being initiatives, such as new urbanization, one belt and one particularly significant in some regions. Second, some road, Beijing-Tianjin-Hebei Integration, and the Yangtze small and medium-sized cities do not yet have a fixed, River Economic Belt. The supporting capacity of water secure ,and reliable water source, and some cities only resources needs to be enhanced, and water allocation have one water source, which is extremely vulnerable and the production-domestic-ecology configuration to potential pollution or damage. Third, the water should be improved. The carrying capacities of water supply system is overloaded in some cities, which is resources, environment, and ecology need to be an especially prevalent and highly challenging issue enhanced in important economic regions and urban in megacities. Fourth, because of the relatively low agglomerations. level of water quality, water from the supply system To build a well-off, balanced society, it is necessary is usually undrinkable unless boiled or purified. Fifth, to improve the weakest water infrastructures as abnormal events occur frequently in centralized water soon as possible and to move faster toward solutions supply systems, with cases such as ‘meat-broth’ or in terms of water conservancy and water pollution ‘oil-pollution’ incidents happening occasionally. control, which are closely related to people’s livelihood. The water governance system is poorly structured. Balanced urban and rural water infrastructures should First, the legal base needs to be strengthened. The be facilitated, and equal access to water-related legal system is flawed, and practicality is weak. Legal basic public services should be provided. To build an participation is weak, and its function is limited. The ecological civilization and promote green growth, and environmental litigation system needs to be improved. to build a beautiful China, it is important to change Law enforcement and capacity are insufficient, and the the methods of governing, developing, and managing function of basin organizations needs to be enhanced. water. Holistic governance should be facilitated from A national water inspection system has not yet ‘Mountain to Ocean’. Water resources, environment, been established. Second, insufficiency in systematic ecology, engineering, and supply should be governed coordination of water governance has a negative in a holistic way. Water resources and ecological impact on its effectiveness. The transmission processes environment should be protected with the strictest and spatiotemporal distributions of water and materials legal systems. Socioeconomic development should are fragmented; therefore, process-based organizational be coordinated with water resource environment and management arrangements are insufficient to and ecological carrying capacity. A responsible nation maximize the effectiveness of water governance. reputation needs to be established on tackling climate Conflicts are likely, because development and utilization change and protecting biodiversity. National and local functions and protection and supervision functions climate change mitigation and biodiversity protection belong to the same governmental department. could make significant contributions to regional and Overlapping responsibilities among departments on global climate change mitigation and biodiversity the same level and poor institutional coordination fail protection. To implement the Internet Plus strategy, to deliver synergies. Third, the market mechanism it is necessary to construct an information network of should be better used. Water price formation is not water-related monitoring, supervision, and governance reasonable, the water resource tax is relatively low, and to enhance the capability of water governance. and the wastewater treatment fee and discharge fee are imperfect. Trading systems for water rights and pollution rights are still being explored. The financing Conclusions and Suggestions mechanism in the water sector needs to be improved, Tasks in China’s Water Governance and a national flood insurance mechanism has yet to be established. Fourth, information-sharing and The first task for comprehensive water governance public participation mechanisms are not established. is to promulgate or amend water-related laws and Technology support should also be enhanced. regulations and enhance the legal base of water governance. Tasks include amending the water law, New Contexts and Requirements enhancing the implementation of the Water Pollution Prevention and Control Law and codifying the Public Water governance in China is facing various new Private Partnership (PPP). contexts that present not only opportunities but also challenges. To develop new drivers and realize The second task is to enhance the role and effect high-quality development, China needs to use the of basin water governance, to improve the role foundation laid by water conservancy projects and the and responsibility of the national and basin-level constraining power of water management red lines water organizations to increase water governance to develop new growth points, growth poles, and effectiveness according to the principles of nature, growth belts and to promote national strategies or and to strengthen their role in ecological protection. 6 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT A national water governance coordination mechanism The fourth task is to optimize water resource allocation should be established. A clear coordination and promote reasonable utilization of water resources. mechanism should also be established between river It is necessary to enhance river water allocation and or lake chief system and basin organizations. Policy distribution, to control the groundwater development coordination should be clarified among organizations, and exploitation, and to use unconventional water jurisdictions, and departments. resources. The third task is to improve economic instruments The fifth task is to carry out reform in the water sector for water governance and to enhance the application on a deeper level, allowing the market mechanism to of the market mechanism so that the Three Red play a role. The key is to deepen the institutional and Lines policy can be effective. The water withdrawal mechanism reforms in water resource management; permitting system and wastewater discharge to enhance the control of water resource use, starting permitting system should be linked. from clarifying the initial water rights; and to advance water rights registration and trading with pilot projects The fourth task is to improve climate and environment as breakthrough points. change adaptability. Green infrastructure should be increasingly used to manage flooding events and The sixth task for water resource governance is to increase flood prevention capacity. The ecological enhance capacity building to consolidate the foundation flow red line should be established. Nonpoint source of water resource management, with stronger pollution control policies should be improved. A pilot monitoring capacity, collaboration capacity, and program for trading water pollution discharge permits supervision capacity as key priorities. and other financial mechanisms can be used to battle nonpoint source pollution. Water Environment Governance The fifth task is to increase information sharing and The first task for water environment governance is public engagement. The legal framework for water- to undertake comprehensive control of pollutant related data collection and sharing should be improved. discharge. This includes focusing on the prevention A national water information-sharing platform should and control of industrial pollution, controlling pollutions be established. Public awareness and engagement from agriculture and rural regions, and strengthening should be increased. pollution control by vessels at the port. The sixth task for comprehensive water governance is Next, effective measures of water environment to accelerate the establishment of other mechanisms. management are needed. These include focusing on Priorities include mechanisms of scientific evaluation, environment quality target management, continuing technology support, engineering guarantee, experiment with control of total pollutant discharge, implementing and demonstration, evaluation and accountability, and stricter measures in environmental risk control, and international coordination for water governance. applying the pollutant discharge permit system on a broader scale. Water Resource Governance The third task is safeguarding the security of the The first task for water resource governance is to water environment. This includes highlighting overall improve the top-level design to advance the construction prevention and control of groundwater pollution, of a water-saving society. It is crucial to enhance pushing comprehensive pollution control in key mandatory restrictions on water resources carrying drainage basins to a deeper level, strengthening capacity with related indicators and to establish related environmental protection in river estuaries and offshore monitoring mechanisms for warnings and accountability. areas, strictly controlling environmental hormone contamination, and making extra efforts in treating The second task is to implement the double-control black and odorous waters in urban regions. action plan and constraints placed by water resources. The Plan for the Construction of a Water-Saving Society Strengthening support by science and technology will be effectively implemented to comprehensively is also needed. This includes promoting applicable improve the system of water conservation regulations technologies through demonstration projects, tackling and to push forward the construction of a water-saving key challenges in research and development of society in an integrated and region-specific way, with advanced technologies, developing environmental stronger supervision of water conservation. protection industries, and accelerating the growth of environmental protection services. The third task is to highlight key areas in which enhanced measures should be taken in water The fourth task is enabling the market mechanism conservation by agriculture, industry, and urban regions. to play a role. This includes rationalizing pricing and 7 taxation policies, facilitating funding from diversified of water engineering projects, and optimizing the sources, and creating incentive mechanisms. scheduling and arrangement of such projects. Finally stricter environment-related law enforcement and supervision are crucial to water environment Centralized Water Supply Governance governance. Emphasis should be placed on improving The first task for centralized water supply governance the legal and standard system, with more decisive is to improve urban water supply and flood prevention actions in law enforcement and increased capacity of capacity, with the following priorities: optimization of the regulation. urban water supply structure, construction of emergency water supplies and backup water sources, and Water Ecology Governance improvement of water drainage and flood prevention capacity of cities. The second task is to consolidate and The first task of water ecology governance is to improve drinking water safety in rural regions, with a establish an evaluation and monitoring mechanism centralized water supply rate, tap water coverage, a for water ecology, to determine and maintain the water supply guarantee, and water quality compliance ecological flow of rivers and lakes in a scientific way, improved through renovation, supporting facilities, and to explore and implement the red line for basin network construction, and upgrading. Source protection ecological flow. The second task is to strengthen water and supervision of drinking water are also indispensable. ecological restoration and governance of key rivers The third centralized governance task is to protect and lakes. The third task is to make more efforts drinking water sources with life-cycle supervision from in eco-construction for soil retention. The fourth water source to tap to constantly improve the level of task is to enhance protection of groundwater and the drinking water safety guarantee. comprehensive governance of overexploited zones. The fifth task of water ecology governance is to secure water ecological safety by all possible means. Priorities Major Goals of China’s Water Governance include determination of the water ecological red line, The main goal of water governance in China is to build management of water functional zones, protection a modernized water governance system by 2035 that is of waters of good quality, preservation of water and among world’s top systems, has Chinese characteristics, wetland ecosystems, promotion of ecofriendly and and is suitable for China’s market-based economic healthy animal husbandry, and in-depth development system and the modernization of China’s national of water ecological civilization construction. governance capacity and systems. The system should also meet the demand of ecological civilization through Water Engineering Governance reforms and development. Within this governance system, the concept of water governance will be a The first water engineering governance task is to well-understood and relevant issue for all citizens. The improve the comprehensive river flood prevention system includes (1) diversified, network-connected, and disaster reduction system, to strengthen key and clearly defined governance subjects; (2) diverse, engineering construction projects on rivers, and continuous, and systematic governance means; to address the poor parts of flood prevention. The (3) legalization, canonicalization, and standardization second task is to implement water connection achieved as governance methods; (4) strengthened projects of rivers, lakes, and reservoirs to increase the accountability and effectiveness and enhanced environmental supporting capacity of water resources. efficiency. Eventually, this water governance system The third task is to complete major water engineering will result in significant improvement in the country’s projects to enhance the water infrastructure system, guarantee capacity of water security. focusing on large-scale farmland irrigation projects. Priorities include accelerating the construction of key Rationalized allocation and efficient use of water water sources and basin restoration and management, resources should be realized. The most stringent water wastewater treatment, water sources for draught management mechanism should be implemented. resistance, and so on, while implementing a number A city’s population, urbanization, and industrialization of key water diversion projects. The fourth task for should be determined according to its water water engineering governance is to carry out reforms endowments. A water-saving society should be in construction and management of water engineering constructed with improved water-use efficiency and projects to improve management proficiency. Priorities effectiveness. Global advanced levels in terms of include reforming the construction management water conservation in key areas should be achieved. system for water engineering projects, establishing The arrangement and allocation of water resources a healthier and diversified investment mechanism, and the structure should be optimized. Water resource facilitating innovations in management and operation management capacity should be increased substantially. 8 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Water environment quality and risk should be water ecological restoration projects, major water monitored and controlled effectively. Law enforcement diversion projects, water source construction projects concerning water environment should be stepped for drought resistance, and connection projects up, and a water environment risk control mechanism of rivers, lakes, and reservoirs. The dispatching and should be established and improved. All wastewater in command system for flood prevention and drought urban regions should be properly treated, resulting in a resistance should be enhanced. Key flood prevention significant drop in the concentration of major pollutants zones on major rivers should comply with flood and overall improvement in water environment quality prevention standards stipulated in river basin planning, throughout the country. Groundwater pollution should while flood prevention and drainage facilities in urban be curbed and tackled effectively, and the environment regions should be substantially improved. Economic quality of the offshore zone should remain stable with losses from floods and droughts throughout the country positive trends. Economic losses because of water should be effectively controlled. environment should be effectively controlled. A comprehensive water governance system should be Water ecological conservation and restoration should established and gradually improved. Water governance be strengthened comprehensively. Water quantity and management by the law should be strengthened should be guaranteed for the ecoenvironment of rivers broadly, with the establishment of an environmental and lakes to guarantee no reductions of river, lake, carrying capacity assessment and a water resource and wetland areas. Water quality should basically warning mechanism. The effects of water resources, comply with standards in water functional zones, and environment, and ecology on strategic, planning, and visible improvement should be seen in the water project levels should be assessed and verified. Planning ecoenvironment, with substantial improvement in should become more science based and compliant with the stability and ecological services of the water its leading role as highlighted. Markets of water rights ecosystem. The retention rate of natural coastline and pollutant discharge permits and the corresponding should remain stable, and soil erosion should be pricing mechanism should be improved gradually. curbed, with a well-structured comprehensive Significant progress should be made in ecological governance system for water and soil conservation compensation and ecological civilization construction of in place. Overexploitation of groundwater should be water projects. The institutional system and mechanism strictly controlled, and severely overexploited zones should be more logically organized for science- should be eliminated. based construction and healthy operation of water engineering projects. The steady growth mechanism Major improvement should be seen in water of water governance investment should become supply security in both urban and rural regions. more soundly structured, with substantial progress Water quality of water supply sources in urban achieved in technological innovation capacity. The regions should fully comply with the standards. principle of equal accountability between the party and Water supply structure should be optimized, with the government, as well as government assessment diversified emergency and backup water sources and accountability, should be further implemented. and significantly strengthened water drainage and The social atmosphere of public participation and flood prevention capacity. Centralized water supply social supervision of water governance should be rate, tap water coverage, water quality compliance, preliminarily established, and the pace of international and water supply guarantee should see substantial communication and cooperation should be accelerated. improvement in rural regions, with continuous progress being made in improving the drinking water safety guarantee level. Acknowledgments Water-related engineering support and flood We thank our research group member Associate prevention, drought resistance, and the disaster Professor Huan Zhang from the China University of reduction system should be improved. Several key Geosciences, Associate Professor Wenqing Huang water projects of fundamental significance and from Hunan Agriculture University, and postdoctoral long-term impact, aiming to bring development and researcher Dr. Jie Xu from Shanghai University. We well-being for the public, should be built, including thank the China Water Governance Project expert large-scale farmland irrigation projects, key water committee for their comments and suggestions. We source projects, water environment treatment and thank the World Bank for its support on this topic. C HAPT E R 2 China’s Water Security and Existing Problems Background socioeconomic development. Water security is an important part of national security, and ensuring water The issue of water security has a long history. Modern security is an important objective of improved water water security raises concerns mainly because governance. of emerging water supply problems and threats. With the rapid growth of social economies, human As a cutting-edge research topic in water sciences, overexploitation of resources and the environment has water security encompasses various aspects, such aggravated water-related issues such as water scarcity, as water supply and demand, water ecological water pollution, water ecological degradation, and environment, and water hazards prevention and flooding risks. control. It is multi- and interdisciplinary and is related to the central issues in water sciences. Objectively and Water crises have risen to the top of the agenda scientifically evaluating China’s water security is an for science communities, policy makers, and effective way to understand the status of China’s water enterprises. It has become a key research area of issues. regional socioeconomic development and ecological environmental protection. It also generates long-term effects on national security and geopolitics and thus Research Objectives receives growing attention from governmental leaders This study aims to accurately define water security and and nongovernmental organizations. its contents, to identify evaluation dimensions based The outlook on water security in China is not optimistic, on China’s development context, and to construct a because water security faces multiple challenges scientific and reasonable index framework to evaluate simultaneously, for example, water scarcity, water China’s water security. In doing so, this study aims to pollution, droughts, and floods. Some regional water better understand China’s water security, diagnose scarcity and severe water pollution threaten China’s existing problems, and provide decision support for crop production and ecological environment and ensuring China’s water security and improving China’s place unprecedented pressure on China’s sustainable water governance. This chapter is based on a summary of the Thematic Report prepared by Shaofeng Jia and Jieming Deng of the Geographic Science and Resources Research Institute under the Chinese Academy of Science. 10 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Evaluation Methods and Analysis Data sources include the most recent available statistic data, planning documents, water resource China Water Security Evaluation assessment documents, and so forth. Specific criteria Framework and Indicator are set for respective indicators. For example, following international standards, water supply is considered Weight Determinations affordable when the percentage of domestic water Water security contains important connotations of the costs based on per capita income is lower than following: (1) sufficient water quantity and quality 1 percent in primary cities, whereas it is considered to meet reasonable human and ecological demands, unaffordable if that percentage rises above 5 percent. (2) sustainability of water supply and water-related The values of each indicator are normalized according ecological system, (3) affordability of water prices to their respective criteria. Based on the normalized and water supply costs, and (4) reliability of flood values and weights of each indicator, an overall score control and safety. This study defines water security can be calculated. A score of 90 and above indicates as the ability to provide water of sufficient quantity extreme security, 80–89.9 is secure, 70–79.9 indicates and quality at an affordable cost and in a sustainable relative security, 60–69.9 indicates relative insecurity manner and to ensure the security of flood prevention and 60 and below indicates extreme insecurity and control. This study uses the analytic hierarchy (table 2.1). process (AHP), an effective multitarget decision method combining qualitative analysis with quantitative Present and Future Evaluations analysis, to construct a framework encompassing the of Water Security in China five following aspects: (1) water quantity, to measure whether the quantity of water resources can meet Current Evaluation the needs of human activities such as agriculture, industry, and domestic uses; (2) water quality, China’s comprehensive water security score is 83.72, to measure whether water quality can meet the which fits into the security level (80–89.9). Affordability requirements of domestic, production, and ecological scores 98.18, which places it in the extreme security systems; (3) sustainability, to measure the ability of level (>90). Water quantity and sustainability score water resources to ensure their own sustainability, the 88.12 and 85.66, respectively, fit into the security level. sustainability of exploitation, and the sustainability Water quality and flood security score 76.33 and 76.43, of ecological functions; (4) affordability, to measure respectively, placing them in the relative security level the water price affordability for all types of users and (70–79.9). Each aspect of the framework is evaluated the water supply costs for the society; and (5) flood as follows: security, to measure the occurrence of flood disasters • Water quantity. The amount of available water and the corresponding control capacity. Then, the study resources is greater than the total water demand in determines the water security index system according China, but there are severe water shortages in some to the interacting relationships between the indicators specific areas. The proportion of the rural population and the availability of the data. with drinking water security has increased in recent The AHP is used in combination with expert years. Drinking water unavailability only exists in questionnaires, which gather the collective knowledge some remote rural areas in arid regions. Steady of the experts, and is able to pass a consistency test improvement of water supply security has resulted to avoid individual subjective preferences. Individuals in high coverage of water supplies in urban areas of are invited to give a matrix of relative importance China. Droughts have been generally light in recent of the different indicators, and then the consistency years, mainly concentrated in northern regions. test is conducted based on all submitted matrixes. If Water resources can meet agricultural demand in the test fails, all experts are consulted again until the normal years. test passes. Then, mathematical methods are used to • Water quality. The recent situation of water quality determine the matrixes respective weights (Table 2.1). in China is not optimistic in general. Surface water This study conducted two rounds of questionnaires. is slightly polluted at present, and nearly a quarter In the first round, 29 effective questionnaires were of the river length has been seriously polluted, as returned, and another 25 were returned for the second well as three-quarters of the lakes. The compliance round. The Kendall W concordance coefficient test of rate of urban centralized drinking water sources the Multipaired Sample Nonparametric Test method has stabilized around 90 percent, with room to is conducted as the consistency test. The W value improve. Water supply quality problems are still was .583 for the second round, with a p value of .000, prominent. Tap water that meets the quality passing the consistency test. standard is only about 83 percent at water utilities 11 Table 2.1 Index System (with Weights) of Water Security Evaluation, China Criteria layer Sub-criteria layer Indictor Sufficient quantity Level of water demand being Percentage of rural population with safe drinking water (0.4034) (0.2961) met (1) Urban tap water coverage (0.3739) 3-year average drought-affected areas (0.2227) Sufficient quality Natural water quality (0.6216) Proportion of river lengths that meet class I to III water quality (0.2202) standards (0.3574) Proportion of lake areas that meet class I to III water quality standards (0.2224) Compliance rate of drinking water source quality of urban water supply (0.4202) Water supply quality (0.3784) Compliance rate of urban tap water quality requirements (1) Sustainability Water resource sustainability Changing rate of local water resources (objective weight) (0.2074) (0.4377) Changing rate of external water resources (objective weight) Development and utilization Development level of surface water (objective weight) sustainability (0.3019) Level of groundwater overexploitation (objective weight) Water ecological sustainability Ratio of runoff entering ocean (0.4289) (0.2604) Changing rate of important lake areas in last 10 years (0.5711) Affordability Domestic water price affordability Percentage of domestic water costs based on per capita income in (0.0893) (0.5224) primary cities (1) Production water price Elasticity of water price to economic growth in primary cities (1) affordability (0.2236) Water supply cost affordability Ratio of marginal water supply costs to per capita income (1) (0.2540) Flood management Safety outcome (0.6641) 3-year average flood-induced mortality (0.6354) guarantee (0.1870) 3-year average proportion of flood-induced economic loss (0.2188) 3-year average probability of urban waterlogging (0.1458) Flood management capacity Percentage of dikes complying with flood prevention standards (1) (0.3359) Note: Objective weight is decided by the ratios of local water resources versus external water resources and surface water versus groundwater. in urban areas and is even lower when the water lower than 1, and water price is therefore not the reaches the users. main factor affecting the efficiency of enterprises. Water is affordable for enterprises. The water • Sustainability. The average annual water resources supply costs, such as the South-to-North Water of China remained stable in general, as do external Diversion Project for Beijing, are considerably water resources. Development and utilization are lower than 3 percent of per capita income and are not excessive overall, but water resources are highly therefore within the safety range. overexploited in the Hai River Plain and some inland closed basins. The ratio of runoff entering the ocean • Flood security. In recent years, flood disasters have has improved compared with the multiyear average, been relatively light in China, and the affected which can basically meet the ecological freshwater areas have been concentrated in the coastal areas demand for rivers, estuaries, and oceans. The in southwest and southern China. Flood-caused changing rate of important lakes areas in the last 10 death and economic loss have been halved since years has improved compared with the most severe 2000. However, the urban waterlogging problem is period of lake shrinking in 1990s. becoming increasingly prominent and has occurred in about 60 percent of cities. The percentage of • Affordability. Domestic water cost is still low in dikes complying with flood prevention standards is China and is considerably lower than the safety still low, below 70 percent, and therefore can be standard of 3 percent of per capita income. The improved. elasticity of economic growth of the water price is 12 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Future Evaluation decline slightly. By 2030, 80 percent of urban areas should meet the sponge city standard, and urban The comprehensive score of water security of future waterlogging will be eased. According to a target set China (2030) is 93.32, which places it in the extreme by the Ministry of Water Resources, dikes should all security level. The separate categories score, from high meet flood-prevention standards in the future. to low, 98.80 (affordability), 94.11 (water quantity), 93.61 (sustainability), 93.51 (water quality), and 88.93 Provincial and Basin-Level (flood security). Except for flood security, the rest fit into the extreme security level. Each aspect of the Water Security Evaluations framework is evaluated as follows: Water Quantity • Water quantity. Applying environmental Kuznets At the provincial level, water is abundant in the curve to water use, water demand is expected to southern regions, especially the coastal areas. Urban be less than the available water resources of 810 and rural drinking water security and socioeconomic billion cubic meters. Water supply-demand conflicts development’s water demands can be met. Water in the north will be eased with the completion of is also relatively abundant in central China and the interregional water diversion projects. Water quality northeast. Provinces in the North China Plain, such compliance rate and water supply guarantee will as Beijing, Tianjin, and Hebei, face potential water be enhanced, with drinking water security for the supply-demand imbalances, which are expected rural population in China being guaranteed. Drought to be addressed with interregional water diversion effects are expected to decline slightly by 2030. projects. Water-scarce provinces, such as Inner • Water quality. According to the State Council, water Mongolia, Tibet, and Gansu, have relatively low urban quality of water function zones in major rivers and tap water coverage due in part to droughts in recent lakes should basically meet the standards. Good- years. In 2030, rural drinking water security will be quality water should occupy more than 75 percent basically met with increasing water supply coverage in the seven major river basins. Water quality and improvement of water engineering projects and of all drinking water sources of the urban water interregional water diversion projects. Water demands supply will meet the corresponding standards. by crop productions can be met. Relatively severe According to environmental Kuznets curve, China’s droughts in the northern regions will be effectively water pollution is ceasing to degrade, and water relieved. Overall, water demand in the eastern coastal environment can be expected to improve to good regions will be satisfactorily met, and water scarcity in conditions by 2030. the water-scarce regions will be eased. • Sustainability. The sustainability of water will At the basin level, water resources of basins in the be improved. Precipitation and available water south, such as the Pearl, Yangtze, Southeast, and resources are expected to vary within limited ranges Southwest River Basins, are extremely rich. Domestic and are therefore sustainable. Surface water and and production water demands can be met. But water groundwater overexploitation and water ecological supply infrastructure in the Southwest River Basin degradation are expected to be alleviated through is relatively poor, and irrigation water supply needs more reasonable water allocation, diversion, and to be improved. In the northeast, water resources unconventional water resource utilization. However, are relatively rich in the Songliao River Basin. Water some water ecological issues cannot be overlooked, resources in the Huang-Huai-Hai River Basins are such as the drying up of rivers in the north. the scarcest, but this is expected to be eased by interregional water transfers. Water is scarce and • Affordability. Water supply costs can be maintained unevenly distributed in the Northwest River Basin. within the affordable range. The main reasons are With the increase of socioeconomic water uses, water because China’s water use is close to its peak, few supply-demand conflicts are increasingly acute. In new water supply projects are expected, and the 2030, water resources are expected to be abundant cost of unconventional water sources is declining. in the Pearl, Yangtze, Southeast, and Songliao River Even if water price increases by 100 percent and Basins, with adequate water supply infrastructure. water use per capita increases by 50 percent, water Water demand can be satisfactorily met. Water cost will still be less than 3 percent of the per capita demands in the Hai and Huai River Basins can be income. met by interregional water diversion projects being • Flood security. Flood prevention and control will still completed. Rural drinking water security and water face severe challenges in the future. Basin-level demands for crop production can be assured in the flooding and regional heavy precipitation may still Southwest, Northwest, and Yellow River Basins with happen at times. Flooding effects are expected to increasing water supply infrastructure. 13 Water Quality water resource utilization, water sustainability will be improved in provinces facing surface water and On a provincial level, rivers and lakes are more polluted groundwater overexploitation and water ecological in Beijing, Tianjin, Hebei, Shandong, and Shanxi. Water deterioration. Overall, water sustainability in the pollution in provinces in the northwest and northeast Beijing-Tianjin-Hebei region will be hugely improved, have been improved. Among southern provinces, while because of natural constraints, the northwestern Yunnan, Guangdong, and Shanghai have relatively poor provinces will still face high risks. water quality, mainly in the lakes. Water supply quality is good overall and meets water demand requirements. At the basin level, water sustainability is poorer in the Urban water supply quality could be improved. In 2030, north than in the south. In these areas, the Hai River according to the environmental Kuznets curve, China Basin has the worst sustainability; its water resources will have reached a tipping point. In economically have decreased for years and are being overdeveloped. relatively developed provinces in particular, economic The existing situation is not sustainable. Water development and environment protection will be ecological sustainability in the Yellow River Basin also better coordinated. Water quality will continue to be faces acute problems. Water resources in the Songliao good in southern and western provinces. Water quality River Basin have largely decreased, and ecological in Shanghai and Guangdong will be significantly flows have been used. By 2030, water resources will improved. Water pollution in the north, especially the become more sustainable. By developing new water Beijing, Tianjin, and Hebei regions, will be effectively sources, water overexploitation in the Hai River Basin controlled. Urban water quality will meet the standard, will be relieved. Water sustainability in the Northwest with water source protection and water supply and and Yellow River Basins will still face threats because wastewater treatment infrastructure being improved. of natural conditions, such as scarce water resources and large evaporation, along with increased water At the river basin level, water pollution, of both surface demands. water and groundwater, in the Huang-Huai-Hai River Basin in the north is the most serious. Water pollution in the Liao River Basin is relatively severe, while the Affordability Southwest River Basin is fine. In the southern rivers, At the provincial level, household water costs and lakes in the Yangtze, Pearl, and Southwest River marginal water costs in all provinces are both lower Basins have poor water quality, while water quality than the international safety standard: 3 percent of per in the Southeast River Basin is relatively good. By capita income. However, in some less economically 2030, according to basin environmental management developed areas, some projects have problems being planning and the development trend, water quality used after completion because of the high costs of in China’s seven major river basins, as well as water high-lift and long-distance water transfer projects. sources, will be significantly improved. Examples include the Wanjiazhai Water Transfer Project in Shanxi and the high-lift Yellow River projects in Sustainability Ningxia and Gansu. The ratio of water price elasticity to economic growth is lower than 1 in all provinces. At the provincial level, poor water sustainability is seen Therefore, water price increase is within a reasonable in the North China Plain, including provinces such as range, and production water prices are affordable. By Beijing, Tianjin, and Hebei. Multiyear average water 2030, production and domestic water prices, as well resources have reduced significantly. Problems include as water supply costs, will still be affordable. On one high water demand, groundwater overexploitation, and hand, because of the cost reduction of unconventional ecological flows being depleted. In provinces in China’s sources and water source quality improvement, water arid and semiarid northwest, such as Ningxia, Gansu, supply costs will be further reduced. On the other and Xinjiang, water resources are extremely scarce, hand, along with economic growth, people will be evaporation is large, and rivers and lakes are losing able to afford increasing water prices. Except a few substantial amounts of water. With their socioeconomic poor regions, water prices and water supply costs in all development, water resources carrying capacity has provinces will be stabilized within affordable ranges. been exceeded and ecological flows have been used. Water supply costs will be even lower in provinces Water resources in China’s south are abundant, and without water transfer projects. multiyear average water resources have remained stable. Water development and utilization are low, At the basin level, household water costs and marginal and the water ecological problem is not severe. By water costs in all basins are both lower than the 2030, provincial water resources will remain similar. international safety standard: 3 percent of per capita Through more reasonable water allocation, water income. Some water supply projects in the Yellow diversion project implementation, and unconventional River Basin have lost money because of the high costs 14 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT compared with low water prices. The water supply good” or worse. Beijing, Tianjin, Hebei, Shanxi, and cost of the South-to-North Water Diversion Project is Shandong in the North China Plain score the lowest and so high that only higher-value-added industries with showed regional concentration. By 2030, water security good economic performance can afford to operate in in the north will still be worse than in the south. the Hai River Basin. By 2030, production and domestic Provinces in the northwest, such as Ningxia, Gansu, and water prices, as well as water supply costs, will still Inner Mongolia, score relatively low. The Yellow, Huai, be affordable. However, water supply costs in western and Hai River Basins in the north score relatively low. regions using transferred water need controlling to be within the economic bearing capacity in the poor areas. Conclusions and Suggestions Flood Security Overall, China’s water security is satisfactory with some regional problems. Several suggestions are detailed here. At the provincial level, severe flood disasters are mainly concentrated in the southern provinces, such as Hunan, Guangdong, Guangxi, Chongqing, Sichuan, Guizhou, Water Demands and Overexploitation and Yunnan, with heavy rainfall. Flood-induced death Although the overall available water resources in and economic loss occupy higher proportions in their China can meet the demand for socioeconomic gross domestic product. Urban waterlogging has development, water shortages are still serious in become an increasing problem. More than 50 percent some regional areas, such as the Hai, Yellow, and Huai of cities in almost all provinces are experiencing River Basins. Drought is relatively severe in the north, increasing waterlogging. The dike compliance rate and rural water demand in the northwest is poorly with flood prevention standards is higher in the west met. Overexploitation are acute in some regions; for than in the east. By 2030, with the improvement of example, groundwater overexploitation in the Hai flood prevention projects, flood-affected areas and River Plain poses unsustainable risks. To relieve such severity will be reduced. But damages are difficult to regional water supply-demand conflicts and to reduce estimate. Southern provinces with more frequent heavy their negative effects on crop production, urban water rainfall and western provinces with steep terrain will supply, and ecological environments, additional water experience more severe flooding than eastern and demands should be met through water allocation northern provinces. With the construction of sponge optimization and water efficiency improvement. New cities, China’s urban waterlogging problem will be water sources, including unconventional sources, effectively relieved. should be used to meet water demands in water- At the basin level, flood disasters are more prominent scarce regions. Costs and technologies of desalination in southern basins, such as the Yangtze, Pearl, and recycling should keep improving. Water and Southwest River Basin, where there are often overexploitation should be eliminated through urban landslides and mudslides. Northwest and Yellow flood management, rainwater utilization, water source River Basins in the north also have had relatively high retention, and ecological development. numbers of flood-caused deaths and economic losses and therefore face relatively high risks. Moreover, dike compliance rates in the Yangtze, Pearl, and Songliao Water Pollution and Water Supply Quality River Basins are relatively low and could be improved. The water quality problem is the primary threat for By 2030, China will start to focus on flood prevention water security in China, with different degrees of and control in small basins. Urban flood management, pollution in rivers, lakes, groundwater, offshore water flood prevention, and control capacity at all basins will fields, and so on. Water supply quality is also of be improved. However, basin-level floods, regional concern, with the water quality standard compliance heavy rainfall, and typhoon-caused torrential floods rate lower than 90 percent. After going through the and urban waterlogging still occur, especially in several pipe networks, water quality may deteriorate further basins in the west and south. before reaching the final users. To control water pollution, water environmental management should be Comprehensive Water Security prioritized to build an ecological civilization and control pollution sources. The total pollutant amount should be Evaluation of China capped within the assimilation capacity. Meanwhile, At the provincial level, China’s water security level water source protection should be strengthened. Water is higher in the north than in the south (map 2.1). supply quality supervision should be enhanced, with All provinces in the south score “relatively well” or comprehensive water supply information becoming better, while all provinces in the north score “relatively transparent. 15 Map 2.1 Spatial Distribution of China’s Water Security, by Province and Basin, 2018 and 2030 a. 2018 (by province) b. 2018 (by basin) c. 2030 (by province) d. 2030 (by basin) Although water ecological deterioration has been eased, Water Supply Project Operation water ecological function damage is still severe in some and Maintenance regions. Although lake shrinkage is reversing and water ecological sustainability is enhanced, they have not The high costs of inter-basin water transfer and reached ideal conditions. Because of human interventions high-lift water supply projects in some areas may such as dam blocking and water storage, it is common temporarily exceed the levels of local economic for rivers to dry up in the north. Ecological flows are capabilities, which may cause difficulties in attaining not ensured, which can cause detrimental effects on their engineering benefits. Taking water supply costs river sustainability. Ecological flows and river ecological into account, water-scarce regions should use water protection should be taken into consideration in water transfer projects to avoid the situation of water resource allocation and water engineering project overexploitation coexist with some projects being operation to ensure water ecological sustainability. left idle. 16 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Flood Prevention and Control China’s pollution discharge and water use have started to decrease. Under strict management and substantial The overall level of damage has been reduced investment, with the flood prevention system being compared with historical situations. However, the improved in major rivers and flood prevention projects seriousness of urban waterlogging and insufficient flood being implemented in medium and small rivers, control capacity of medium and small rivers show that water pollution prevention and control have risen to a weaknesses still exist in the flood control and disaster national strategy for building an ecological civilization. mitigation systems. Water use has peaked and started to decrease. Therefore, China’s water security is set to improve. Future Challenges and Opportunities The Chinese economy is rapidly improving, China’s Acknowledgments population will continue to grow, and urbanization and living standards are expected to improve. The We thank experts at the State Council Development formation of an increasing number of big cities and Research Center for their coordination and guidance. the uncertainty of climate change together pose We also thank the experts’ contributions during various challenges for China’s water security issues, the consultation process. We are also grateful for such as water supply and flood prevention and control. contributions from the project team and support from However, based on environmental Kuznets curve, the World Bank. C HAPT E R 3 Advancing Water Quality Markets in China Background and achieved important reductions in pollution discharges affecting chemical oxygen demand and ammonia Deteriorating water quality poses a growing challenge concentrations. Several agricultural initiatives have been to health, sustainability, and development that developed to reduce excess fertilizer and pesticide runoff. undermines the security of the water supply as The government has been promoting greater innovation countries industrialize and urbanize and populations in environmental policy under the 13th Five-Year Plan, grow. Despite having 20 percent of the world’s calling for a shift to a more sustainable economic population, China’s water resources represent only development paradigm under the goal of achieving an 6 percent of global freshwater resources, and these ecological civilization (State Council 2016). New policies, face major stress from economic growth pressures, regulations, and standards for various aspects of water climate change impacts, and institutional and management have been issued, and ambitious pollution regulatory gaps in management. Official reports reduction targets have been established. These include find that one-third of China’s surface water is unfit the adoption of market-based mechanisms and policies to for human contact, while more than 80 percent of address water pollution. groundwater used by farms, factories, and communities Water quality markets (also called emission trading, is too polluted for safe drinking or bathing (Reuters tradable allowances, water quality trading, and 2015; Xia 2016). In the absence of adequate other names) can improve water quality faster and measures to manage water, the economic costs are at lower cost than traditional approaches, and with conservatively estimated at 2.3 percent of China’s gross multiple benefits for communities and business domestic product (Xie et al. 2009). (Figure 3.1). Internationally, water quality markets Acknowledging these challenges, the Chinese government have improved access to information on pollution has made significant investments and introduced sources and reduction goals; strengthened cooperation several important regulatory initiatives concerning water. among government, businesses, and farms; supported Investments in industrial and municipal wastewater adaptability in water management; and improved treatment have generated major benefits relative to costs monitoring and centralized collection of water quality This chapter is based on a summary of the Thematic Report prepared by the Willamette Partnership and the World Resources Institute under the leadership of by Bobby Cochran. 18 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Figure 3.1  Water Quality Credit Trades businesses, farms, and other communities (adapted from Willamette Partnership et al. 2012). International best practices often frame water quality markets as an approach that can only be developed pending certain regulatory, institutional, and technical Point source- point source prerequisites. However, many initiatives have trade been developed in the absence of one or several prerequisites and have served as important entry points Buyer Seller to a pathway leading to better management. Within the complex and rapidly evolving landscape in China, the requisite institutional, regulatory, and technical Water quality reforms are being established, and water quality credits markets could be a valuable approach to both catalyze a shift toward improved water resource management Source: Water Quality Markets in China’s Rapidly Evolving Policy Landscape: Challenges and Opportunities (2007). Policy brief prepared and provide a more flexible mechanism to help achieve by the Willamette Partnership and the World Resources Institute. water quality targets at lower cost. data. Water quality markets work because they provide Research Objectives flexibility for how pollution reduction goals are met, allowing sources with higher reduction costs (also The objectives of this study are to provide background called abatement costs) to buy pollution reductions— on international best practices in water quality often called credits—from sources with lower costs markets, reflect on the Chinese experience, and that are able to reduce pollution discharges below propose recommendations on how to advance water a required, or baseline, level (Selman et al. 2009). quality markets in China as part of the overall efforts A credit is a measured or estimated unit of pollution to improve water management. It is based on Water reduction per unit of time (for example, in kilograms Quality Markets in China’s Rapidly Evolving Policy per year) at a specified location that can be sold or Landscape: Challenges and Opportunities and the traded as part of a market (USEPA 2007). accompanying Advancing Water Quality Markets in China: A Guide for Government and Business. Water quality markets were first mentioned in economics literature in the 1970s, and they have been in use in China and the United States since the Analysis and Summary 1980s. However, market development has faced Water quality markets require a set of intentional several challenges related to inconsistent policies decisions about desired water quality goals, who is and market guidelines, missing information, and responsible for reducing pollution, and how progress monitoring. In contrast to air pollution markets, water will be monitored and tracked. Based on international quality markets are often localized, creating fewer experience and best practices, there are several potential buyers and sellers with lower volumes of important prerequisites to a successful water quality transactions. People care deeply about clean water, so market (Stavins 2006; World Resources Institute 2013), negotiating stakeholder interests can be challenging. including the following: (1) a designated authority to Despite the challenges facing water quality markets, enforce pollution reductions exists, (2) pollution sources there have been some success stories, and it is are identified, (3) the types of pollution that mix do not estimated that US$31.8 million was transacted create localized impacts, (4) a range of abatement costs globally in water quality markets outside of China exists across pollution sources, and (5) the market’s in 2016, an increase from US$20.8 million in 2013 geographic boundary is defined. Common elements and (Bennett and Ruef 2016). process steps are needed to build effective markets. The potential benefits a water quality market include These common elements include shared principles to (1) reduced costs and increased speed of meeting guide market design and operations, a standard set of water quality improvements, (2) added flexibility in market design steps, and recommendations for how to how regulatory requirements are met, (3) the creation advance water quality markets. of new sources of revenue for entities that reduce Successful water quality markets can be defined as pollution more than required, (4) the creation of multiple having achieved transparency, real pollutant reductions, environmental benefits beyond the targeted pollutant accountable tracking, sound science, and clear lines being reduced, (5) increased accountability and provision of responsibility. If some prerequisites are not in of new tools for tracking water quality improvements, place, water quality markets may experience several and (6) the creation of new relationships among challenges (adapted from Willamette Partnership 19 et al. 2012, Part 1, p. 13), including (1) uncertainty about credit demand occurs, a system needs to be in place whether pollution reduction is achieved if monitoring to allocate pollution permits and trade allowances. The is limited, (2) the creation of localized pollution hot total number of allowances needs to be scarce enough spots (for example, areas of elevated eutrophication or to create demand for additional allowances but not so concentration of toxics), (3) the perception that some scarce that costs for trading become too high and limit polluters are not doing their share to reduce pollution, market activity (Zhang et al. 2013). Clarity of water (4) concerns over the balance between privacy and quality goals also often depends on sound scientific transparency for market participants, and (5) difficulties understanding of pollutant damage. in achieving equity for new or expanded businesses if some entities have to reduce pollution more than others. Stipulating percentage reduction targets for particular pollutants from particular sectors is an important first International experience also suggests that even step to begin generating water quality market demand. in absence of these prerequisites, the process of However, key economic actors and water users will likely developing water quality markets can serve as a catalyst raise questions at some point regarding what levels for improvements in water management. Potential of pollution reduction are needed to support current improvements from the process of developing a water and future water use needs, such as for clean drinking quality market can include the following: (1) more water, industrial processes, agriculture, fisheries, and effective platforms and protocols for communication, recreation. To anticipate and address these questions, engagement, cooperation, and joint decision making the following actions are recommended. First, existing among the range of government agencies, economic water quality standards and watershed pollution budgets actors, and communities involved in water use and should consider the use of water quality markets management, including joint clarification of goals, rights, and extend some of these goals into other priority roles, and responsibilities; (2) strengthened water quality water bodies. Second, guidelines should be provided monitoring, better identification of key polluters, and on how to measure and report pollution reductions. the development of a clearer picture of the status of Next, databases and reporting structures for pollution water resources within the relevant geographic unit; discharges should be centralized, and these databases (3) improved understanding of the range of abatement should be able to track pollution reductions and market costs among identified polluters; and (4) greater transactions. In addition, tools should be provided to flexibility and adaptability built into management local governments to predict and measure pollution frameworks. Moreover, these improvements in the reductions in a low-cost, standardized way (for example, development of water quality markets can facilitate a a standardized nutrient reduction model for farms). more integrated and effective framework for process- Finally, a standardized verification template should be based problem solving and management and introduce provided to monitor performance and compliance for greater economic rationality into water resource credit sellers. management and planning. This can, in turn, feed back into and strengthen the development of water quality Limited demand for credits is a common factor markets by creating demand. undermining the success of water quality markets. Demand is often driven by stricter, enforceable pollution Clear, complete, and enforceable goals that can be reduction requirements (Willamette Partnership et al. monitored to verify that pollution reductions are real 2012, Part 1, p. 17), and few water quality markets are two of the most critical elements to a water quality rely on voluntary reductions to create demand for trading market. The government has established a credits. Conflicting policies and regulatory constraints clear red line that requires 95 percent of major water will also serve as barriers (Corrales et al. 2013), and function zones to comply with water quality standards water quality markets in China need to fit within and all sources of drinking water to meet rural and several policy frameworks, such as Five-Year Plan goals, urban standards by 2030. Goals ensure that markets environmental impact assessments, pollution discharge are producing desired effects and provide information levies, and local requirements (Zhang et al. 2012). used to best design and operate markets. Where goals Sometimes, these policies can limit who participates are established in regulation or policy mechanisms, in a water quality market, how transactions occur, the implications for the level of restriction on market and who is responsible for monitoring and tracking activity (demand) need to be carefully considered. If pollution reductions. It is also important to manage pollutant limits or caps are set too stringently or the risk and uncertainty, which can increase transaction timeline to meet those is too short, the cost of trading costs associated with generating water quality credits as an approach to meet regulatory requirements may and moving them between buyers and sellers. High be higher than alternative compliance measures. If transaction costs reduce the economic efficiency these limits or caps are too lax, no market demand of markets, and if they are too high, they can be a will occur (Corrales et al. 2013). For China, before barrier to transactions occurring (Alston et al. 2013). 20 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Transaction costs include (1) start-up costs to build For China, agricultural nonpoint-source pollution has and launch a market; (2) finding and matching buyers surpassed industrial point-source pollution as the and sellers; (3) negotiating the price and terms country’s main source of water pollution (Xu and of a transaction; and (4) monitoring, verification, Berck 2014). As such, inclusion of agriculture in water and enforcement costs. Risk is also generated from quality markets will be necessary. However, the specific uncertainties around the source and effect of pollution, characteristics of China’s agricultural sector makes weather events, changing market rules, and how this challenging in the near term: around 200 million market participants will behave, each of which can small farmers contribute most of the national crop be mitigated by appropriate market design elements production in China, with an average farm size of (Willamette Partnership et al. 2015, p. 90). However, 0.60 hectares per household in 2010 (Huang, Wang, mitigating each risk is often tied to accessing more and Qiu 2012). This suggests that transaction costs information, which has been a significant problem could easily become prohibitive without innovative challenging various water quality markets. Filling approaches. Market programs involving point-source information gaps takes time and resources, and there is discharge sectors as buyers and agriculture sectors as a need to consider trade-offs between known risks and sellers, or with agriculture sectors as both buyer and the costs of managing those risks. seller have been developed in New Zealand, Canada, and the United States, including with small farmers that China has been building the foundations for trading grow specialty crops (Duhan et al. 2015; O’Grady 2008; both water and air pollution emission rights for more Selman et al. 2009). Larger professionally operated, than three decades, and pollution emission trading corporate-owned, or state farms could be could be markets have been largely driven by government included in water quality markets as a first step while policy and have required significant government exploring the opportunities, transaction costs, and risks intervention. Most buyers purchasing credits are associated with mechanisms to include smaller units, either new sources or existing sources offsetting new such as contracting villages as single entities in water growth in pollution discharge. An emission rights quality market trades. trading platform has been piloted by the Ministry of Environmental Protection and the Ministry of Finance Social relationships among participants are important in the Tai Lake Watershed (Wang et al. 2008), as for facilitating information exchange, trust, and well as across several other provinces, including reciprocity for transactions (Corrales et al. 2013). Chongqing, Jiangsu, Zhejiang, Inner Mongolia, Hubei, Trust can also help reduce transaction costs (Mariola Qinghai, Guangdong, Fujian, Henan, Hunan, Xinjiang, 2012). Globally, active stakeholder participation has Shaanxi, Hebei, and Shanxi. Although the emission been essential to ensuring access to environmental trading in China’s air pollution permit trading pilot markets for community participants (Hejnowicz et al. programs have been heavily influenced by institutional 2014). In China, the mix of important stakeholders and political considerations, more than 3.9 billion may be different, but it is still likely important yuan was transacted through air and water quality to involve the key buyers, sellers, and market markets (1.9 billion yuan) and pollution discharge administrators early, as the market is being designed levies (2 billion yuan) through 2013. For water quality (Han and Hu 2011). Aspects of water quality markets markets, this included trades in 176,000 tons of have to be built locally, but diverse stakeholders chemical oxygen demand credits and 0.2 million tons often identify a common set of guiding principles in ammonia nitrogen. Most air and market transactions that water quality markets should achieve. The (86.2 percent) have concentrated in Zhejiang, Shanxi, following guiding principles were established in Shaanxi, and Jiangsu provinces. Pollution discharge the United States by business, government, farmer, levies were used mainly to build government capacity environmental activist, and other stakeholders part to regulate and reduce pollution (Liu 2014) and most of a National Network for Water Quality Trading of these trades have been conducted in combination (Willamette Partnership et al. 2015): (1) effectively with new, expansion, and technical innovation projects accomplish regulatory and environmental goals; arranged by local environmental protection bureaus (2) be based on sound science; (3) provide sufficient (Morgenstern et al. 2004). accountability, transparency, accessibility, and public participation to ensure that promised water To achieve the full benefits of water quality markets, quality improvements are delivered; (4) produce no a wider range of economic actors and sectors localized water quality problems; (5) be consistent will eventually need to be included in trading. with the water pollution prevention and control Internationally, several water quality markets allow for regulatory framework; and (6) include appropriate trades between point sources (such as industry) and compliance and enforcement provisions to ensure nonpoint sources (such as agriculture) of pollution. long-term success. 21 Conclusions and Suggestions Based on international experience, the national government can do much to encourage provincial and Policymakers are increasingly looking to market-based subprovincial experimentation with and development mechanisms to provide several important water quality of water quality market approaches. This includes benefits. First, markets can be extremely effective both the standard role of market referee—monitoring mechanisms for price discovery. Water quality markets and verifying water quality and enforcing water can thus be used to identify what the real cost of regulations and contracts—and the role of market water quality allowances should be in specific contexts. enabler (Scherr and Bennett 2011). The central Second, price helps signal relative resource values and government has demonstrated a clear political will can help identify hot spots where resource bottlenecks and financial commitment to addressing the remaining are severe. Third, markets help stimulate better supply management gaps, meaning that water quality and demand management via price, which includes market development can play a role in both building catalyzing technical innovation to overcome constraints. flexibility and adaptability into evolving management Thus, well-functioning water quality markets in frameworks and engendering greater economic China can help encourage enterprises to adopt best rationality and planning in the use of and investment in management practices in mitigating the water pollution water resources. Enabling the role of the market can be they generate. Finally, markets are dynamic and allow enhanced through the following recommendations: for flexibility and adaptation via the price signal. This is especially important in the face of ongoing climate • Raise awareness of water quality markets as a change impacts, which will have important and tool. Although water quality markets are not new, unforeseen effects on water systems. many government and business stakeholders are not aware of their potential or have limited expertise in The development of water quality markets has the designing and using such approaches to achieve water potential to address water quality challenges. However, quality goals. As such, there is often a need for active particular actions will be needed to overcome the education and awareness about where markets can be challenges faced in China. Markets are not magic, useful, where they are not, and how to begin. China and although the government’s promotion of can increase awareness of and interest in markets by market-based approaches to water management is providing communication tools and messages about encouraging, water quality markets are no substitute the applicability of markets, training local governments for the fundamental reforms needed to achieve on the resources available to design markets, effective water management. This is evident from and creating incentives for businesses and local past experiments with these approaches. Effective governments to consider water quality markets early in water resource management will only be achieved their pollution reduction planning processes. via a comprehensive and effective water quality monitoring system, a clear and detailed legal and • Provide technical support and guidance. Many regulatory framework governing water resources, locales across China lack the capacity to develop strong enforcement of current and future regulations water quality markets by themselves. The central and contracts, and sufficient technical capacity on the government can thus provide assistance to locales part of water agencies at central and local levels. interested in experimenting with these approaches. This includes creating and providing standardized Several common questions have to be answered to methodologies and guidelines, assisting in the build any water quality market, and markets have to development of pollution reduction benchmarks follow a common set of design steps. Using standard and baselines, assisting in monitoring and assessing design steps, such as those shown in figure 3.2, can ongoing market performance, and planning for reduce start-up costs, increase consistency to enable adaptive management by revisiting national and scaling of markets, and improve the likelihood of local market policies regularly (although not too market success. These standard elements and design frequently) based on ongoing market performance. steps are meant to help incorporate global best All of these functions could be supported by the practices and the prerequisites to market success into creation of a specific national office for facilitating market policy and practices. water quality market development. Figure 3.2  Common Design Steps Building a water 1. 2. 3. 4. 5. quality market Feasibility and convening Design Pilot test and approval Operations Program improvement 22 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT • Conduct feasibility studies. It is important to identify pollution reduction goals, stakeholder support for locales where water quality market pilot programs markets, and enough potential buyers and sellers to are most likely to succeed. Markets do not work make a market viable. if there is no demand. Demand is most often • Increase consistency across market policies and created when there is a clear obligation to reduce implementation. The national government can pollution and individual dischargers can translate improve local uptake by creating a more consistent that obligation into their own planning. Potential policy environment for water quality markets. Some buyers also need to know how to participate in actions could include incorporating clear authorization markets, how much a credit will cost, and how and/or preference for the use of water quality to understand potential risks. Clear market rules markets in national policy; issuing a set of common answer these questions. China can expand on its guiding principles and minimum market sideboards existing pilot programs by looking across the country to provide a starting point for market development for watersheds where clear demand and clear rules locally; generating local policy templates that local intersect or are close to emerging. Implementing governments can use to create consistent market pilot programs solely based on stakeholder interest rules and requirements; providing technical assistance has not generated the hoped-for market activity in to local governments as they build, operate, and the United States. A good feasibility study can help adaptively manage their water quality markets; identify the conditions necessary for market success. and providing tools to dischargers to incorporate The national government could fund and support consideration of a market option as they plan for feasibility studies in watersheds that have clear treatment plant upgrades, business growth, and so on. C HAPT E R 4 Macroeconomic Effects of Water Scarcity and Red Lines in China: Results from an Integrated Regional CGE Water Model Background Council on Implementing the Strictest Water Resources Management System established three red lines that set The allocation of water resources typically involves many targets for water use, water use efficiency, and water economic agents and sectors with complex interactions quality, including at the provincial levels. The first red line and often-competing demands. As populations increase, aims to cap national annual water use at 700 billion cubic societies develop, and as hydroclimatic conditions become meters by 2030. The second red line sets specific targets increasingly uncertain, the analysis of the economic on industrial water use efficiency (reduce water use to implications associated with the allocation of water 40 cubic meters per US$1,600 industrial added value) and becomes increasingly important to support the political agricultural water use efficiency (irrigation efficiency must decision-making process. This is particularly important to exceed 60 percent). The third red line requires 95 percent China’s economy, which is challenged by limited water of major water function zones to comply with water resources, increasing industrialization and urbanization, quality standards by 2030 and all sources of drinking regional heterogeneity, and a changing climate. Forward- water to meet rural and urban standards by 2030. looking and agile policy instruments are required to Managing water use within the three red lines is thought respond to changes in demand and increasing competition to require the annual increase in the demand for water from different economic sectors to ensure water security to be limited to less than 1 percent. While it is projected for sustained and sustainable development. that there will be gaps between supply and demand Recognizing these challenges, the Chinese government across the country, there have been limited analyses has adopted a comprehensive set of policies and on the quantitative effect of water scarcity and these legislative measures over the last several decades specific policies on the national and regional economies aimed at improving water management. These include in China. Computable general equilibrium (CGE) models measures to address water pollution, control water- offer a comprehensive way of modeling the overall effect related disasters, and promote water conservation. of policy changes on the economy. The model simulates The No. 1 Central Document of 2011 highlighted the interrelationship among production activities, factors water resource development and established water of production, households, and government and can conservancy as a priority investment area to accelerate capture both direct and indirect effects of policy change. economic development. In 2012, Opinions of the State Moreover, coupled with water resource models developed This chapter is based on a summary of the Thematic Report prepared by the International Food Policy Research Institute in Beijing under the leadership of Kevin Chen. 24 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT to optimize water allocation under various hydrological which strengthen the component economic and water scenarios, an integrated modeling framework can improve models. understanding of the links between water scarcity and economic growth and ways in which to effectively cope Research Objective with these challenges. The objective of this chapter is to examine the Interactions between water and economy are incredibly economic impacts of China’s Three Red Lines policy. complex, and although CGE models have been widely This is done through the development of a coupled used in China since the 1980s, few have been applied multiregional dynamic CGE model and water resource to analysis of water-related policy issues. As economies management model at the river basin-provincial levels. become more developed and sophisticated, so do the multiple demands for water resources. Water can Issue Analysis and Summary have multiple uses, and unlike other intermediate An integrated multiregional dynamic CGE and water inputs or final consumption goods, water can be used resource management model was developed for China. for consumptive and non-consumptive purposes. This integrated model approach draws on the strengths These uses are often integrated or interrelated. In of the two models to consider the characteristics of both addition, the value attributed to water needs to the water resource system and the economic system. consider a range of attributes associated with the As such, it can be used to simulate river basin water resource, including the quantity and timing of flows accounting and the allocation of water across sectors, and the quality of the water. Historically, all uses of as well as to evaluate the effects of water shortage on water were confined within the watershed. However, the regional economy and the effects of water resource infrastructure development and the virtual trade of management policies on the macroeconomy. water further increase the complexity in estimating the value of water and its contribution to the economy. The multiregional dynamic CGE model simulates the Special techniques are required to tackle the difficulties operation of a market economy, which include all and build the links of water and the CGE model. relevant agents, such as producer, household, and First, water is as a factor in the production function; government, and their interaction across the markets both aggregated water supply and water coefficient (figure 4.1). In the figure, the arrows represent payment by crop are fixed, but water is freely mobile across flows. This is based on the CGE model developed by the sectors. Second, water is incorporated as a factor International Food Policy Research Institute (Lofgren, input in sectoral constant elasticity of substitution Harris, and Robinson 2001) and extended to the regional production functions. Third, water is an input to one level (Diao et al. 2012; Zhang 2009). The recursive or more industrial sectors in the production function. dynamic version of the CGE model incorporates a series Fourth, water models are integrated with CGE models, of dynamic factors. Similar to other single-country Figure 4.1  Dynamic Computable General Equilibrium Model Employment, land, Factor inputs and other assets Factor returns Economic Household incomes growth and consumption Agriculture Industry Rural Domestic markets Linkages for goods and services Production Consumption Linkages Services Indirect taxes Urban Exports and imports Foreign markets and countries Recurrent Foreign spending aid/loans Direct taxes Government Sector policies Household Public investment policies Productitvity (technology) and macroeconomic policies FDI Savings Investment (capital) Private investment Note: FDI = foreign direct investment. 25 CGE models, China is assumed to have a small, open external shocks, with each model solution providing a economy in that the international price for each tradable range of economic indicators. Outputs include national good is exogenous. Following the general equilibrium and regional gross domestic product (GDP), sectoral theory, both consumers (households) and producers are production, trade volumes, commodity prices, and individual economic agents. household income. The dynamic CGE model is a multisectoral general Production activities and production factors were divided equilibrium model that captures economic activities on into six regions (north, northeast, east, south central, both supply and demand sides. The model captures southwest, and northwest) to reflect the production production and consumption behavior through nonlinear, characteristics and differences among the regions. Taking first-order optimality conditions of profit and utility into account the integration of the market, production maximization. The equations include a set of system is linked to a unified national market at the same price, constraints that define macroeconomic equilibria and interregional trade is not explicitly counted. Each (balances for savings investment, the government, region coproduces a class of products, and products can and the current account of the rest of the world) and be replaced with one another. Factor mobility is allowed equilibrium in markets for factors and commodities. The between crop production within regions and labor base year was updated to 2014 using the latest available migration from regional crop production to non-crop and macroeconomic data and 2012 national and provincial nonagricultural activities at the national level. The model input-output tables. Both aggregate and disaggregate is regionally disaggregated, with several agricultural social accounting matrixes were constructed for the sectors to capture the effects of water stress on crops, Chinese economy in 2014. Recursive dynamics are because agriculture is the largest water user, with applied in the model, occurring only between two 11 crops in 62 sectors. periods, and neither consumption smoothing along The water resource model has four components: the growth path nor multisectoral investment and (1) water demand projections for domestic, industrial, saving decisions are taken into account. Instead, irrigation, and other sectors; (2) water supply private investment (and hence capital accumulation) optimization; (3) water allocation across sectors; is determined by a Solow type of saving decision, in and (4) cropwise water allocation and simulation of which savings are proportional to income. The model crop yield reductions under water stress, wherever it can be used to simulate the effect of various policies or occurs. The basic structure is illustrated in figure 4.2. Figure 4.2  Schematic Illustrating Basic Structure of the CWRM Based on the BPU Concept Province BPU Demand DMU DMR IND IRR ECO OAG P E GW BPU 1 BPU R BPU BPU BPU Basin BPU Legend Reservoir Groundwater Junction node Demand Sink Link Interbasin transfer Return flow Enviro. flow Source: Authors analysis. Note: BPU = basin-province unit; CWRM = China Water Resource Model GW = groundwater R = reservoir. 26 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT A minimum environmental flow requirement is applied only affects the regional water price, the water prices to constrain release from the last basin-province unit in other regions would not change. Water quantity (BPU) in a basin. Minimum flow requirements are also by sector is incorporated into the model to assess the applied to upstream BPUs to reflect water allocation effects of water shortage on industrial water use. regulations among provinces within the same river Policy-oriented water resource modeling in a country basin. The model can simulate water use impacts of as large and hydrologically diverse as China requires technological and socioeconomic changes, as well as disaggregation to capture these spatial heterogeneities climate change. in the endowment of water and land resources, Water resources are integrated in the CGE model as differences in socioeconomic development, structure of intermediate goods for production and to incorporate water-using sectors, water infrastructure, and water- their effects on land productivity. Water use is using technologies. The 10 first-order river basins separated into two types, industrial water use and delineated by the Ministry of Water Resources were household water use, to identify the different water intersected with the 34 provincial-level administrative constraints. Both industrial water use and household units to create 76 BPUs (map 4.1). In addition to water use are disaggregated into each region, and capturing spatial variations in spatial units smaller than water demand and water supply are balanced at the basins or provinces, the BPUs allow aggregation of regional level, assuming no water trade among the input data and output results from BPUs to river basins, regions. In that way, the water stress in one region provinces, and regions. Map 4.1  Map of Basin-Province Units (BPUs) with BPU Identifiers in the 10 First-Order River Basins in China Source: Authors analysis. Note: BPU = basin-province unit. Gray lines represent provincial boundaries. 27 Table 4.1  Policy Scenarios for Assessing Economic Effects of Water Scarcity and Red Lines Identity Background Scenario specifications Remarks Business as Average per capita water resources BAU scenario assumes There will be an increasing trend of usual (BAU) in China is about 2,039 m3. During modest increase of water use water shortage challenge facing China the normal years, China is short of efficiencies (annual growth from now to 2030. The pollutants water by more than 50 billion m3 rates at 50% of that for meeting disperse and contaminate other (The World Bank 2017). Moreover, red lines) and length of river freshwater resources and further The percent of water that was reaches seriously polluted contribute to water scarcity. not qualified for portable use was (i.e. worse than class V) remains 11.7% in 2015. unchanged throughout 2030. Total water In 2015, the total water use is All other factors same as The national and regional impact of use cap 610 billion m3 in China. The red BAU, except the national and imposing red line will be simulated. (REDTWUC) line caps the total water use at a provincial “total water use red maximum of 700 billion m3. The line” is applied. total water use red line is allocated to the province and prefecture. Industrial The water use per 10,000 yuan All other factors same as BAU, The regional impact of imposing the red water use industrial GDP at the national level except the red line target line for industrial water use intensity intensity decreased from 283 m3 in 2000 of 40 m3 per 10,000 yuan will be simulated. red line to 75 m3 in 2015 with the annual industrial GDP in 2030 is (REDIWUI) decreasing rate of 8.5%. applied. Increased In 2015 about 63% of water use All other factors same as BAU, The national and regional impact of irrigation in China is for irrigation, irrigation except the “red line on irrigation imposing the irrigation efficiency red efficiency red water use efficiency is 0.53 in water use efficiency” increase to line will be simulated. line (REDIE) 2015. 0.6 in 2030 is applied. Surface water The red line requires that more All other factors same as BAU, There are a number of criteria for pollution than 95% of the water function except 100% of water qualified meeting the red lines on water quality. red line zones meet water quality targets for domestic uses and other By 2030, 75% of water from seven (REDSWP) by 2030. productive uses. major river basins is required to qualify for type I-III 100% of water qualified for portable use in Jing-Jin-Ji corridor, Yangtze River Delta, and Pearl River Delta. All red lines Combined scenarios as described All the “red lines” above are This “Combined red lines” scenario forms (REDALL) above. applied in the model. a counterfactual condition of the BAU. Source: Authors analysis. Six policy scenarios were designed to assess the growth, in addition to moderate increases in water use effects of water scarcity and red lines on the economy efficiencies. More details of the six scenarios are given (table 4.1). The business-as-usual scenario is simulated in table 4.1. to 2030 from the base year 2014 using a 45-year historical climate data series. Using long-term data is important to capture the stochastic realizations Conclusions and Suggestions of weather and river flows. The baseline considers The model highlights the challenges of physical water exogenous drivers, such as population growth, scarcity and the gap between demand and supply. At urbanization, and technology change. The total the national level, under the business-as-usual scenario, population is estimated to reach 1.41 billion by 2030, a gap of 59 billion cubic meters is estimated by 2030. with an urbanization rate close to 68 percent. The If only the total water use cap red line is implemented, total productivity growth rate is set with reference to this gap increases to 162 BCM. As expected, these the historical GDP growth by sector. In the business- gaps are projected to be severe in the dry north and as-usual scenario, the irrigation efficiency and water northwest regions. However, the relatively wetter use intensity are conservatively increased at annual east and south central regions also face future scarcity growth rates that are half of those needed to meet challenges as demands (largely industrial demands) the three red line targets. The percentage of polluted are increasingly in excess of available supplies water remains unchanged to 2030. Thus, the drivers (figure 4.3). While industrial water abstraction has of water demand are population and economic remained relatively constant, because of increasing 28 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Figure 4.3  Estimated Regional Water Shortages, in Cubic Kilometers, 2030 REDALL REDSWP REDIWUI REDIE REDTWUC BAU 0 20 40 60 80 100 120 140 160 180 Northwest Northeast North East South Central Southwest Source: Authors analysis. Note: REDALL = all red lines; REDSWP = surface water pollution red line; REDIWUI = industrial water use intensity red line; REDIE = increased irrigation efficiency red line; REDTWUC = total water use cap; BAU = business as usual. efficiency, domestic water use, driven primarily by rapid in a traditional cap and trade emission programs), urbanization, is estimated to be increasing around 2.5 facilitating market-based water reallocation. Linking percent per year. these to improvements in water pollution trading mechanisms can also help to narrow the gap between Water use efficiency improvements are central to supply and demand in key areas, particularly in the offsetting the implementation of the total water use east and south central regions. While the positive cap. To minimize water shortage and the associated economic impacts of water pollution control are small economic cost, water withdrawal regulation needs and the effects of improved water quality are largely to go hand in hand with water use efficiency localized, several intangible benefits through ecological improvements and pollution reduction, which improvements would need to be considered. Water have the indirect effect of increasing supplies. The transfers and other measures can be used to augment results of both improvements in industrial water water supplies, although they will increasingly require use efficiency and irrigation efficiency show that the innovative institutional and governance arrangements water shortage situation is improved significantly to facilitate transboundary considerations and compared with the business-as-usual scenario. administration of economic policies. Comparatively, the economic effects of improving industrial water use efficiency will be larger than Overall, the implementation of the Three Red Lines those of irrigation efficiency. In the absence of policy appears to be an effective water management incentives to encourage continued improvements in policy that will not substantially reduce national water efficiency, the total water use cap will result economic growth. The limited impacts of the Three in significant negative effects on both national and Red Lines policy on the national economy largely result regional economies. In particular, water shortages in from localized effects of water shortages. However, the east, south central, and southwestern parts of there are several important assumptions in the CGE China will increase dramatically, with the cumulative model. For example, the model allows for factor negative effects on the regional GDP estimated to be mobility between crop production within regions almost 5 percent in the east region and between 0.5 and labor migration from regional crop production and 0.8 percent in the southwest and south central to reallocation and nonagricultural activities at the regions, respectively. national level. In reality, these factors cannot move freely among regions, thus underestimating the Caps on total water use control could be traded at national macroeconomic impacts of the Three Red provincial and lower administrative levels (much like Lines policy would be higher. Future work will need 29 to examine the effects of these assumptions on the east, south central, and southwest regions, where model results. urbanization and industrialization are driving demand. Industrial sectors with higher water use intensity, The relative impacts of the national measures of the such as machinery and equipment, metals, chemicals, Three Red Lines water policy on the regional economy and non-metal products, are the most affected. are more significant. Thus, future policy measures Additional research, along with model development will need to be tailored to the regional and/or and sector disaggregation, are required to improve provincial context for maximum effect. Differential the confidence of these scenario outputs and to better effects of the policy measures on different sectors refine the policy interventions. Nonetheless, the are also observed. The model predicts significant results provide insights into the economic implications policy-related effects on irrigation water and crop of water resource-related policy measures stipulated yields in the northwest, and imposing the total under the Three Red Lines policy that can be used to water use cap will lead to dramatic increases in inform the political decision-making process around water shortages and large economic losses in the development trajectories in China. C HAPT E R 5 Re-Examination of the Strictest Water Resources Management System and Basin Water Allocation in a New Era Background arrangements, marking the official establishment of the SWRMS in China. To solve increasingly complicated water-related problems and attain high-efficiency utilization and From the implementation experiences of the last few effective protection of water resources in China, based years, it is clear that problems still exist in matching on a systematic summary of empirical experiences top-level institutional designs with on-the-ground of water management in China, both the 2011 implementations. There are technical problems such as Decision of the CPC Central Committee and the State total water use cap adjustment under different water Council on Accelerating Water Conservancy Reform availabilities, institutional problems such as coordination and Development (No. 1 Central Document) of the between water quotas of river basins and provinces, and Central Committee of the Communist Party of China implementation problems such as monitoring capacity (CCCPC) in 2011 and the Central Government Water building. These problems are reflected in the rationale, Conservancy Conference have required implementation implementability, and effectiveness of the Three Red of the Strictest Water Resources Management System Lines policy and river basin water allocation. Therefore, (SWRMS) and set up the Three Red Lines policy in this chapter reexamines China’s Three Red Lines policy Opinions of the State Council on Implementing the from regional and socioeconomic perspectives to Strictest Water Resources Management System. The offer suggestions for improving China’s water resource three red lines set targets on water development and management. utilization, water use efficiency, and water pollution control and aim to facilitate coordination between Research Objectives socioeconomic development and water resources This chapter discusses problems in implementing carrying capacity using an institutional approach. In the SWRMS from various perspectives and offers accordance with the water management strategy corresponding solutions for decision makers. The of the central government, the State Council issued main research objectives are to (1) review the status opinions on implementing the SWRMS that lay out of the three red lines and water resource allocation; corresponding implementation plans and specific (2) evaluate the rationale, implementability, and This chapter is based on a summary of the Thematic Report prepared by Jianhua Wang and Fan He of the Institute of Water and Hydropower Research under the Ministry of Water Resources. 32 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT effectiveness of the three red lines and water resource resource management is facing new requirements and allocation; and (3) offer suggestions to improve the contexts, such as the new water governing strategy and three red lines and water resource allocation. the river chief system. In particular, the 19th National Congress of the Communist Party of China (CPC) pointed Analysis and Summary to new directions for building an ecological civilization and required China’s water management mechanisms Overall Development to be continuously improved and promoted. Progress of the SWRMS China has established the SWRMS at various levels with Overall Progress of River the Three Red Lines policy and four sets of regulations, Basin Water Allocation namely, the regulation on total water use, the regulation Since the 1980s, China has completed the water on water efficiency improvement, the regulation allocation plans for the Yellow, Heihe, Luan, Zhang, on restriction of pollutants in water function zones, Yongding, and Daling Rivers, where water resources and the regulation on water resources management are scarce and water supply-demand conflicts are responsibilities and performance monitoring. Progress stark. Those actions have played an important role has been made in several areas. First, the institutional in regulating water development and utilization, system is continuously being improved. The period targets enhancing water management, and advancing water of the evaluation indictors of the three red lines have protection. However, interprovincial water allocation been allocated to all provinces, cities, and counties. More in China is lagged and cannot meet the requirements than 100 implementation documents have been issued of water management in the new era. Based on the by local governments. Various mechanisms have been Water Law of the People’s Republic of China and established, such as double control on water use and the “Decision of the CCCPC and the State Council on efficiency, the national water-saving campaign, and a Accelerating the Reform and Development of Water water resources carrying capacity monitoring and warning Conservancy” (Decree No. 1, 2011), the Ministry system. Evaluations have been conducted, and inter- of Water Resources started the allocation of water department coordination has been facilitated. Mechanisms resources in more interprovincial river basins in 2011. that hold the main government officials accountable have been established. Most provinces have included In August 2014, a technical review of the first batch of water-related evaluations into the overall performance 25 river basin water allocation plans was completed. In evaluations of governmental and party officials. March 2015, the Ministry of Water Resources consulted provincial and municipal governments on the river Second, resource management targets have been basin water allocation programs in the Nen, Huai, Han, fulfilled. In 2016, the total water use of 31 provinces and 17 other rivers. In October 2016, with the approval was 604.02 billion cubic meters and water use per of the State Council, the Ministry of Water Resources 1,000 Chinese yuan of industrial value added has officially approved the first batch of water allocation decreased from 9 cubic meters in 2010 to 7.23 cubic plans for interprovincial river basins (Han, Jialing, Min, meters in 2016 (2000 price). Farmland irrigation Tuo, and Chishui Rivers), which marks a new stage of efficiency has increased from 0.5 to 0.542 in the same basin water allocation work in China. period. The water quality compliance rate in important lakes and rivers reached 73.4 percent. Suggestions on the SWRMS Third, provincial and local governments have developed water management mechanisms that suit their To meet the requirement of standardization, circumstances. For example, Shandong has set yellow, refinement, and normalization, several suggestions can orange, and red warning lines and is using them for further develop the SWRMS. warning purposes to assure sufficient urban and rural water supplies and water ecological security. Hebei province has SWRMS and the River Chief System changed its water resource fee to a tax and included both The goals of the river chief system and the SWRMS are surface water and groundwater in its tax collections. consistent. While the river chief system emphasizes Overall, China has established the Three Red Lines overall organizational structure, the SWRMS emphasizes policy and four sets of regulations. The SWRMS has concrete targets and tasks. Two mechanisms have been effectively implemented. However, China’s water their own organizational arrangements, management resource management mechanisms face challenges methods, and implementation means. How to better in two respects. The first is the weak foundation of coordinate these two mechanisms to create synergies monitoring and measuring capacity. In addition, the should be further explored. The following suggestions indicators of the three red lines are strict in some are offered: first, local party and governments regions but less so in others. Second, China’s water should include the SWRMS in their river chief system 33 implementation, especially taking water efficiency for the water ecological protection red line based on red lines into consideration. Second, indicators of the ecological flows and biodiversity that are included in SWRMS, such as total water use, water use per unit of the river and lake health indictors. Governments of all industrial value added, water quality compliance rate levels above counties should start listing rivers and of water function zones, and total pollutant caps in lakes for health evaluations. In the early stage, the major water function zones, should be allocated to river list can be based on the national important river and chiefs at different levels. Third, consistent evaluation lake water function zones, supplemented by other indicators and mechanisms should be established. important rivers and lakes in the same region. Then, Implementations of the river chief system and the health evaluations on important rivers and lakes can SWRMS should be evaluated together. be advanced step by step. The number of rivers and lakes for evaluation and the targets of health indicators Water Sector Legislation should be decided each year. The average values should be used as control targets. China’s water resource management faces new requirements and contexts. In particular, water To implement the water ecological red line to protect conservation and protection lack sufficient legislative river and lake health, the first step is to work out river foundations. The existing legal system in the water and lake health evaluation guidelines based on the sector needs to be reviewed systematically and existing health evaluation indicators, standards, and corresponding legislation or amendments should be methods for rivers and lakes, respectively, to develop arranged. First, several important laws and regulations standardized and normalized evaluation procedures on implementing the SWRMS, constructing a water- and technical methods. The second step includes saving society, reviewing groundwater management, enhancing monitoring capacity on aquatic biodiversity, and regulating geothermal development should facilitating staff skill training, and developing a be promulgated. These include ‘Water Resources relatively comprehensive water ecological monitoring Management Regulations’, ‘Water Saving Regulations’, network in China. The third step is to raise awareness ‘Groundwater Management Regulations’ and of water ecological protections. The roles of public ‘Geothermal Resources Management Regulations’. supervision and evaluation should be fully used, and Second, the water law needs to be improved by adding the value of harmony between water and people content on water quality protection. The legal status should be promoted. The fourth step is to enhance of the water law should be elevated to develop a support for river and lake health evaluations in terms of comprehensive water law. Implementation details and institutional design and funding. supplementary regulations should be issued. Third, the Basin Water Resources Protection Law should be Basin Organizations’ Role promulgated, laying out principles and regulations for The river basin is the basic unit of land surface basin water resource development and utilization, as hydrological cycles. Water resources in the same basin well as protection. Specific legislations should also be form a system in which upstream and downstream facilitated. For example, water use control and water resources are closely related. Therefore, river basin and soil conservation should be prioritized in the water management can attain comprehensive Yellow River Basin, while water pollution prevention benefits from water resources. With the completion and control, as well as ecological protection, should of comprehensive planning of water resources in be prioritized in the Yangtze River Basin. Fourth, various basins and advancement of water allocation criminal responsibility legislation on water resource in interprovincial river basins, the technological protection should be advanced. Based on international foundation for comprehensive river basin management experience, means of criminal law could be adopted to has gradually been formed. Unclear responsibilities deter behaviors that seriously violate water resource exist between basin management and administrative protections. Water-related crimes, such as illegal water regional management in terms of water resource withdrawal, polluting the water environment, and management, leading to insufficient implementation. damaging water conservancy infrastructures, can be set up, in addition to crimes related to damaging resources. To address these issues, the first step is to enhance and improve the existing water management system and confirm basin organizations as representatives, Water Ecological Red Line planners, and coordinators of the basin. In particular, China’s SWRMS has been implemented but can be the supervision function of basin organizations improved. It is necessary to add a water ecological should be enhanced with clearly defined supervision protection red line, in addition to the existing three red content. Targets on total water use cap, water function lines. Because of the complexity and diversity of water zones, water quality compliance rate, and reduction ecological systems, and considering the feasibility of of total water pollution in important water function local implementation, one indicator should be added zones can be allocated to each basin (river chiefs at 34 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT different levels should be responsible). A basin water that produce high-value-added crops, fewer financial management evaluation system should be established subsidies should be given to water-saving irrigation. to be the basis for the SWRMS. The second step is to establish a new multidepartment basin organization to Refined Water Resource Management coordinate various departments and regions on water- Supporting Systems related management issues, such as planning and formulating standards and policies. Meanwhile, each Implementation of any mechanism requires strong basin could explore water resource and environmental supporting systems, especially for mechanisms with management systems that suit their local context, as innovative top-level designs such as the SWRMS. Since well as interdepartment and interregional coordination 2012, the Ministry of Water Resources has implemented mechanisms. For example, river basin water resource national water resource monitoring capacity building protection and water environment protection projects (phases 1 and 2) and has preliminarily committees can be formed, consisting of relevant completed monitoring and statistical analytic systems central government departments and government on water use by main water users and water quality of officials from provinces within the basin. Water main water function zones. Comprehensive management pollution prevention and control joint meetings can also platforms have been established at central, provincial, be initiated. In doing so, coordination between water and city levels. To enhance water resource management- resource protection and water pollution prevention and supporting capacities, the tradition concept that only control can be enhanced. Information sharing can be dams and canals are water conservancy projects needs to an entry point for the establishment of the coordination be changed. Water monitoring system development and mechanisms. The third step is to improve laws and water information capacity building should be included regulations and advance basin legislation. Duty, and even prioritized. responsibility, and power should be made consistent The first step is to develop three monitoring systems between basin organizations and corresponding for water users, water sections (provincial boundary provincial and local water departments. A special sections and control sections), and water function zones. basin water court can be established to deal with Water metering and monitoring capacity should be various torts, negligence, and other water disputes. improved. Water quality and quantity at water sections A basin management law enforcement team should be at provincial boundaries should be improved, and established to enhance basin law enforcement. monitoring points and systems should be established. Remote real-time monitoring of discharge at water Differentiated Water Management sections should be gradually accomplished. The second and Evaluation System by Region step is to improve the grassroot water management China is vast, with substantial spatial differences in capacity. Grassroot water management standardization terms of water resource natural endowments, water should be facilitated. Organizational responsibilities, development and utilization, water conservancy personnel, funding, technologies, and equipment should project construction, economic structure, city scale and be clarified. Grassroot water management training type, and socioeconomic development stage. These should be facilitated, and grassroot professionals’ characteristics indicate that China’s water resource skills should be improved. The third step is to advance management should differ depending on regional technological innovations in the water sector. Focus natural conditions and socioeconomic characteristics. should be placed on fundamental questions, key A guidance on the implementation of the SWRMS by technologies, and equipment to develop a science- region should be issued. technology supporting system that suits the contexts of China’s water sector and national development. The first step is to establish a differentiated evaluation framework, design indicators, and weights in different Suggestions on Water Allocation regions. For example, evaluations in water-scarce northern regions should focus on saving water. Postallocation Evaluation and Weights of indictors on water use, water efficiency, Adjustment Mechanism and groundwater management should be increased. Ecological flow should be added as an indicator. Total Whether water allocation organizations are effective water use control can even be changed to mandatory, and the allocation targets can be met can only be while a certain level of flexibility could be given to verified by implementation. For river basins like the water-abundant southern regions. The second step is to Yellow River, where water resources, water supply implement differentiated financing policies. For example, conditions, and socioeconomic development are in grain-producing regions, more financial help should going through substantial changes, water allocation be given to water-saving irrigation, while in regions plans should be adjusted over time. To summarize 35 lessons already learned and to improve water resource availability to secure reasonable water use resource management, postallocation evaluations and suppress excessive use. Monitoring management are recommended based on water dispatch practices. and performance evaluation should be enhanced. This study suggests the construction of an evaluation Provincial governments should include water use index framework based on the three following aspects: quotas, water allocation, and water transfer plans implementation targets, implementation effects, and in their SWRMS and implement river and lake chief institutional development. Such a framework can be systems. used to evaluate scientifically the effectiveness of water allocation and to identify problems. Suggestions Trading Mechanism on water supply calculation, water allocation coordination mechanisms, and implementation can be To use the effects of market mechanisms and attain offered. The procedures for water allocation adjustment efficient utilization of water resources, an allocated should be clarified. Water allocation plans should be water trading mechanism should be explored, in adjusted and improved based on evaluations. combination with the pilot mechanism for water rights allocation. Local governments should be allowed to trade the allocated water resources that they do not Implementation through Water Dispatch use. Agreements can be made before every annual Water dispatch is an important means to implement water allocation plan and should be approved by the water allocation plans. First, water dispatch joint respective basin organizations. After water is allocated meetings should be initiated; basin organizations and each year, the tradable amount can be determined water department officials should attend, and important based on actual water use. Only usage rights, not issues and problems should be addressed in terms of proprietary rights, can be traded. river basin dispatch. Second, water dispatch plans, water dispatch methods, and water allocation plans should Conclusions and Suggestions be made, as well as plans for water dispatch during drought emergencies. A hierarchical management As an innovation of China’s water resource and responsible mechanism should be used in making management mechanisms, the SWRMS has been water dispatch plans. The total water use cap and implemented at different levels and its targets have discharge control in important water sections should been met. Corresponding institutions keep being be implemented. According to the principle of dynamic developed. At the same time, the water resource adjustment, annual water allocation plans should be management mechanisms are facing multiple made based on medium and long-term projections. challenges. Basin-level coordinated management Third, hydrological modeling and forecasting work should be improved, regional differences are not yet should be enhanced. Scientific forecasts of annual water well accommodated, and monitoring and measuring availability can provide technical support for water capacity is rather weak. To improve China’s SWRMS, dispatch plans. Fourth, the existing legal framework for the system should be advanced with the river chief water dispatch should be improved. Sectoral regulations system. The legal framework should be developed or should be improved to provide references for daily amended. A water ecological red line should be added. dispatch work. Water dispatch organizations in charge of Basin organizations’ supervision over water resources, daily water dispatch work should be established within environment, and ecology should be enhanced. the administrative system. Regional differences should be better accommodated in the water management and evaluation system to Water Allocation in the Water Use Red Line enhance the supporting capacity of water resources. Finally, evaluation and adjustment mechanisms should Water allocation should be included in the water be developed after water is allocated to continuously withdrawal caps. The total water allocated in a basin improve allocation. cannot exceed the total water available in that basin. Water allocated in a certain administrative region, Acknowledgments i.e. province, city, or county, cannot exceed the water quotas allocated by their respective basin organizations We thank the World Bank for funding this project, the or superior governments. Water withdrawal permitting State Council Development Research Center for support departments should give water withdrawal permits to of this project, and Shuzhong Gu and other experts for water users based on water allocation plans and water their guidance on the research. C HAPT E R 6 Water Rights Allocation and Trading Background management system and promotes the improvement of China’s water governance mechanisms. Water resource management is an integral part of China’s water governance. China’s total water In the 2000s, China began conducting a series of water resources amount to 2.8 trillion cubic meters, ranking rights theoretical studies and practical explorations that it 6th in the world. However, its water resources have generated many research outcomes and lessons. per capita only amount to one-fourth of the global Much progress has been made in water rights content, average, ranking China 100th in the world and among allocation, trading, supervision, and institutional the countries with the fewest water resources per development. Overall, water-stressed regions are capita. Meanwhile, the spatiotemporal distributions of more enthusiastic about exploring water rights trading China’s water resources are uneven, and its economic systems than water-abundant regions. However, the productivity levels are mismatched. Because of foundations of water rights allocation, measuring, and rapid socioeconomic development, population monitoring are incomplete. Consensus has not been growth, improving living standards, and the need made in terms of many key concepts and theories. for environmental and ecologically friendly policies, The legal foundation is weak, and China’s water rights water supply-demand conflicts have become a trading system is still being explored. bottleneck for socioeconomic development. Through market mechanisms, a water rights system is an In deepening China’s reforms, the national government effective way to optimize water allocation, conserve places great importance on establishing water rights and protect water resources, and increase water use trading systems and has laid out plans several times. In efficiency and benefit. Accelerating the establishment 2011, the Decision of the CPC Central Committee and of a water rights market has become an important the State Council on Accelerating Water Conservancy and urgent task for sustainable socioeconomic Reform and Development, also known as the No. 1 development and construction of an ecological Central Document of the Central Committee of the civilization. Establishing a water rights market Communist Party of China (CCCPC), required China to involves institutional reforms in China’s water resource “Establish and improve the national water rights system This chapter is based on a summary of the Thematic Report prepared by the Development Research Center under Ministry of Water Resources and leadership of Li Jing. 38 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT to optimize allocation of water resources using the market need to be assigned in water-scarce regions to ensure mechanisms.” In 2012, the report of the 18th National agricultural irrigation water uses. Ensuring both water People’s Congress encouraged to start pilot programs for supply for registered legal farmlands and agricultural trading water rights. In 2013, the Decision of the CCCPC water price reforms requires water rights allocation. on Some Major Issues Concerning Comprehensively Second, industrial water uses require water rights Deepening the Reform, issued at the Third Plenary transfers in water-scarce regions. In many water-scarce Session of the CCCPC, required the promotion of water regions, it is difficult for industries to develop without rights trading mechanisms. In 2014, President Xi Jinping water rights transfers. Third, water rights stocks should encouraged use of water rights and prices to optimize be revitalized for new water users in water-abundant water resource allocation and let both visible and invisible regions. With the implementation of China’s Strictest hands, that is, the government and the market, play Water Resources Management System (SWRMS), some their roles. He urged China to ‘establish water rights regions are forced to satisfy their new water users mechanisms, to clarify water rights ownership, and to through water rights trading. develop a water rights trading market while preventing agricultural, industrial, and domestic water uses from Ecology being overrun.’ In October 2015, recommendations for the 13th Five-Year Plan for Economic and Social Development Building an ecological civilization requires ensured of the People’s Republic of China (2016–2020), passed ecological water rights. The first step is to clarify ecological at the Fifth Plenary Session of the CCCPC, required the water rights to ensure ecological water uses. The establishment of a preliminary water rights allocation minimal flows in rivers and the quantity and quality of system. After the Overall Plan of Ecological Civilization river flows used to maintain ecological environment for Institutional Reforms proposed to explore a water rights an aquatic biodiversity should be clarified. Supervision system, many places started to explore water rights and responsible departments should also be clarified. market mechanisms again. In 2015, the Ministry of Water Ecological protection requires a water rights buyback Resources initiated seven pilot programs on water rights. system. In addition, an ecocompensation mechanism The national agricultural water price reform has set up requires clear regional ecological water rights. 80 pilot counties and stated that setting up agriculture water rights is the foundation and prerequisite for water Governance price reforms. Some places in Hebei, Shanxi, Xinjiang, and Improving water governance requires an end-user Zhejiang have started water rights pilot programs. The water rights market. The market must be allowed to China Water Exchange (CWE) began operating June 28, decide on appropriate water allocation among users, 2016. Thus, China’s exploration of water rights has entered which further improves water allocation efficiency and a new stage. Furthering the research on water rights benefits. Focus should be placed on uses other than allocation and trading is important for accelerating the domestic and agricultural water uses, such as industrial establishment of China’s water rights system, deepening and service sectors, when introducing the water market. water resource management institutional reforms, and If nondomestic and nonagricultural water uses were improving water governance capacity. determined by the government, administrative efficiency would be significantly decreased and opportunities for Research Objectives rent seeking and corruption could be created. This study aims to analyze the needs for water rights allocation and trading in China, to summarize Public experiences and lessons from water rights allocation Water rights provide incentives for saving water. and trading pilot programs, and to estimate the Water rights allocation and trading can bring economic development of trading water rights in China. It aims benefits to water rights holders and provide internal to offer policy recommendations on water rights drivers for reasonable development, efficient utilization, allocation and trading and provides decision support for conservation, and protection of water resources. China’s water rights market development. Conditions and Difficulties Analysis and Summary Water rights allocation requires preconditions in five Needs aspects, as listed in table 6.1. In terms of difficulties for water rights allocation, the Social Economy legal framework for water rights is not complete. Ensuring industrial and agricultural water use requires The existing legal framework is not clear on related water rights allocation and trading. First, water rights responsibilities and subjects. In terms of the 39 Table 6.1  Preconditions for Water Rights Allocation the water rights system affects the public’s willingness to purchase water rights. The institutional arrangement No. Aspect Preconditions is also incomplete. Third, the water measuring and 1 Legislation Legal definitions of water rights, monitoring capacity is insufficient, and it is hard to obligations, objects, subjects, and know whether water saving has occurred or the procedures environment has been negatively affected by water 2 Administration Water resource allocation, water rights trading. Fourth, water rights trading platforms administrative management, and are scattered, and intermediary services and public risk prevention and control participation need to be improved. 3 Technology Metering and monitoring facilities 4 Economy Costs for water rights allocation and Methods and Lessons in operational costs for monitoring and China’s Pilot Programs measuring facilities 5 Social Public awareness and participation Water Rights Allocation Methods In 2014, the Ministry of Water Resources approved pilot Table 6.2  Preconditions for Water Rights Trading plans for water rights trading by provincial governments and established seven pilot programs for water rights No. Aspect Preconditions trading. Ningxia, Gansu, and Jiangxi provinces and 1 Legislation Water rights allocation and tradable Yidu City in Hubei province have explored water water rights rights allocation. These pilot programs for water rights allocation have generally gone through three phases: 2 Administration Institutions and supervision preparation, water rights registration, and institutional 3 Technology Platform and intermediary services, establishment. In 2014, the Ministry of Water Resources, metering, and monitoring Ministry of Finance, National Development and Reform 4 Economy Purchasing demands, water rights Commission, and Ministry of Agriculture selected 80 mechanisms, and a reasonable price counties throughout the country to test comprehensive formation mechanism agricultural water price reforms. Project acceptance and 5 Social Public awareness, participation, and evaluation work started in 2015. Initial agricultural water supervision rights are allocated through water rights certificates or other official documents. Establishing water rights is the precondition for water price reforms. So far, 39 counties administrative framework, water allocation is incomplete have allocated agricultural water rights to irrigation for many rivers and between sectors. It is debatable users and 41 counties have allocated irrigation water whether the existing water withdrawal permits can be rights to water user associations. Other places, such as used as the basis for water rights allocation. Difficulties Hebei and Shandong provinces, the Dongshao River exist in linking the water rights system and the water Basin in Zhejiang province, and Qingxu county in Shanxi withdrawal permit system. Administrative measures are province have also explored water rights allocation. used to allocate nondomestic and nonagricultural water Basic means include total water use control, water quota uses. Technically, measuring and monitoring facilities are management, water user allocation, and institutional not in place. Moreover, water rights allocation is costly, development. and local governments have limited funding. Measuring and monitoring facilities require a large amount of operational and maintenance expense. Public awareness Water Rights Trading Methods and participation in water rights are insufficient. All water rights pilot programs have attached great importance to water rights trading. Inner Mongolia Water rights trading also requires preconditions in five has enabled intercity and intersector water trading. aspects, as listed in table 6.2. The main methods include setting up a water rights Water rights allocation preconditions differ from those transfer center and financing irrigation water-saving for water rights trading. The legal foundation is limited projects to generate unused water allowances. Intercity in terms of interregional water trading. There are water trading is then facilitated by listing on the CWE differences between transferable water rights and and formulating water rights trading management tradable water rights. Tradable water rights in irrigation methods. The Henan province has conducted water areas are controversial, and there is a lack of legal rights trading along the middle route of the South-to- foundation for water rights trading between irrigation North Water Diversion Project. The main methods start water users and other water users. Second, the with defining initial water rights and then calculating coexistence of the water withdrawal permit system and tradable water amounts. Interregional water trading 40 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT can then be facilitated. A dynamic adjustment water use, water quotas at different levels, water quota mechanism for water rights should be established. determination, and irrigation area determination (6) Water trading price and time should be reasonably set. Clarifying initial water rights contributes to further water rights trading. (7) Agricultural water saving is the main Guangdong province has enabled water trading between source for tradable water. A water rights reservation upstream and downstream areas of the Dong River. First, system is an effective way to expand water rights regional water allocation was made. Water withdrawal supply, and governmental buyback is an important permits were given, and a water rights information means to incentivize agricultural water saving. system and water rights trading rules were established. Three types of water trading were facilitated. The first Reasons for Success type sells unused agriculture water allowances to domestic users. The second type sells water saved by Increasing socioeconomic water demands and benefits irrigators to electric power companies. The third type from water trading are the main drivers for successful purchases water allowances reserved by the government water rights allocation and trading. The SWRMS has to meet water demands the Pearl River Delta. created an enabling environment by capping total water use. From the implementation perspective, the The Jiangxi province has conducted interbasin water success of pilot programs should be attributed to high- trading from the Shankouyan reservoir. The Luxi county level government facilitation, policy guidance, and solid government transfers 62.05 million cubic meters of preparation. water every year from the Shankouyan reservoir to economic-technological development districts in Anyuan District and Ping county. Usage rights of 25 years were Outlook on Water Rights traded at 2.55 million yuan. The Shandong province Trading Pilot Programs has enabled agricultural water rights trading by issuing Overview of the China Water regulating documents, allocating initial water rights, setting up a water rights trading management agency, Trading Platform and implementing a policy of “one card, two prices, and The CWE was established jointly by the Ministry of Water one platform.” The Changji prefecture in the Xinjiang Resources and the Beijing government on June 28, province also enabled unused agricultural water quota 2016, after approval by the State Council. The CWE is a trading. Agricultural users were given initial water rights stock corporation with registered capital of 0.6 billion certifications. The water trading is specified on unused yuan and 12 sponsors. Its main business is to organize agricultural water allowances. According to clear criteria eligible water users to conduct water rights trading that and regulated procedures, unused agricultural water is approved by the water departments. It also provides allowances were bought back at higher prices. The roles service consulting, technology evaluation, information and responsibilities of supervision agencies at all levels disclosure, intermediary services, and other public still have to be clarified. services. China’s existing provincial water trading platforms are limited. Inner Mongolia, Henan, Gansu, Guangdong, Lessons and Shandong provinces have done some positive Several lessons have been learned through China’s exploration into options of trading water rights. The first water rights pilot programs. (1) A legal basis is option is to establish a provincial water trading platform the fundamental guarantee for lasting water rights in cooperation with the CWE. The most typical one is allocation and trading. An incomplete rights system the Inner Mongolia Water Right Reservation Exchange may create potential problems. (2) Water rights Company. The second option is to use provincial trading allocation and trading require both hard and soft platforms for other public goods, which is the method conditions. Soft conditions include water rights used in Guangdong province. The third option is to use a allocation implementation methods, usage regulations, local water rights trading center established by the CWE. and rights protection mechanisms. Hard conditions For example, Gansu province plans to open an online include water supply and drainage infrastructure, water rights trading center for the Shule River Basin metering and monitoring facilities, and information on the website of the CWE. The fourth option includes management systems. (3) Water rights allocation planned provincial water rights trading agencies that will and trading have to be linked to relevant regulations, be members of the CWE. For example, the Shandong such as the SWRMS, the water withdrawal permit province has established a water rights trading company system, and the water allocation system. (4) as a member of the CWE. Many water trading platforms Agricultural water allowances should be decided based have been established at the county level and below. For on land rights and should be linked with water prices. example, seven counties in the Xinjiang province’s Changji (5) Water rights allocation requires a large amount prefecture have established water rights trading centers of preparatory work, including the status of existing and 30 water rights reservation trading platforms. 41 Table 6.3  Outlook of the CWE Period Development conditions Outlook Short term Water rights trading is mainly driven by policies and pilot programs. Relatively stable Mid- to long term The national government requires all water rights trading to be conducted at the CWE Optimistic The national government requires all natural resources, including water, to be traded on Relatively good the same platform. Therefore, the CWE may be merged or may exist as a branch of the national natural resource trading platform. The national government does not issue clear regulations and maintains the status quo. Challenging Policy-driven trading will be reduced, while more market-driven trading can be expected. Note: CWE = China Water Exchange. Outlook of the CWE in linking the water allocation system and the water withdrawal permit system. The second difficulty is The development of the CWE is affected by many insufficient preparation work. River water allocation factors, including trends in water use, trends in is incomplete. Metering and monitoring facilities water rights trading, technology development, policy are insufficient. Water rights trading platforms are directions, legal foundation, institutional reform, scattered and poorly regulated. Intermediary services and operational capacity. Taking all these factors and public participation need to be improved. into account, it is expected that the CWE will have Operational costs exceed the financial capabilities of overall stable development in the short term and far local governments. more midterm changes with both opportunities and challenges. The outlook of the CWE is summarized Rich experiences have been learned from various pilot in table 6.3. programs. Water rights allocation and trading require both hard and soft conditions. Links with other relevant Conclusions and Suggestions mechanisms also need to be addressed. Water rights allocation requires a large amount of preparation Conclusions work. Agricultural water rights must follow land ownership. Clarifying initial water rights contributes to China’s water rights system has made significant further water rights trading. Agricultural water saving progress. But it is still in the exploration stage and is the main source for tradable water. Water rights has room for development. There are actual demands reservations constitute an effective way to expand for water rights allocation and trading. Water rights the water rights supply, and governmental buyback allocation is not only a precondition for water rights is an important means to incentivize agricultural trading but also a precondition for ensuring agricultural water saving. The integration and coordination of water supply and setting water prices in water-scarce different water rights trading platforms needs further regions. The implementation of China’s SWRMS exploration. indicates that water rights trading is needed not only in water-scarce regions but also in water-abundant The CWE will stably develop in the short term and regions to revitalize water rights stocks. Meanwhile, encounter both challenges and opportunities in water rights allocation and trading contribute to the mid- to long term. China’s water rights market ensuring ecological water use, improving governmental is a quasimarket and is undergoing development. water governance, and incentivizing public water The next 3–5 years form the key period for China saving. to deepen its reform based on the many existing pilot programs. In this period, water rights trading Water allocation and trading require preconditions is expected to be mostly policy driven. Trading in legal, administrative, economic, technological, conditions are good. By 2020, China’s comprehensive and social aspects. Those preconditions include clear reform should have achievements in key areas. definitions of water rights and the existence of tradable According to this timeline and considering the allocated water rights, metering and monitoring transition period after the reform period, in capacity, and public awareness and participation. 5–10 years (that is, 2022–27), China’s market China’s water allocation and trading have encountered mechanism will be further improved. The future difficulties. The first problem is insufficient top-level development of the CWE will depend on national design. The water rights system is not yet complete. decisions on natural resource trading. There are both A relevant legal framework is lacking. Problems exist opportunities and challenges. 42 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Suggestions differentiated. The way of working needs to be changed. The government’s micro-allocation to end Laying foundations for water rights allocation and trading users should be substantially reduced. starts by completing regional water allocation, including total water use control and river water allocation. Improving water rights allocation and trading- Improvements can then be made to sectoral water related mechanisms includes water allocation allocation, with emphasis on ecological water use; water coordination mechanism, water rights protection conservancy projects; river and lake management; and mechanism, water use control mechanism, water water resource metering and monitoring facilities. market supervision mechanism, intermediary service mechanism, and public supervision and To accelerate water-related legislation on the national participation mechanisms. level, water-related regulations and laws should be amended, including the Water Law of the People’s To deepen research into water rights theory, water Republic of China and Decree No. 460: Regulations rights allocation and trading development patterns, on Administration of Water Abstraction Licensing and as well as related theories, should be reviewed and Collection of Water Resources Charges. On the local analyzed. level, water-related regulation amendments should be To raise public awareness, the water rights system encouraged. should be introduced to all societal actors and Water rights reform is essentially the reform of the consensus should be made. Public participation should water resource management system. It is advisable to be encouraged. reform the existing mechanisms that are not suitable for developing water rights trading, such as the water Acknowledgments withdrawal permit system. We thank the Ministry of Water Resources for its strong To innovate water allocation means, the roles of support of this project, consulted experts for their the government and the market should be further guidance, and the pilot programs for their cooperation. C HAPT E R 7 Best Practices in Cost-Benefit Analysis for Water Investments Background all major river basins and provide protection for more than 500 million people and about 47 million hectares China has made significant and high-impact of land area. These investments have contributed to investments in water management and infrastructure. a reduction in the average annual number of deaths Over the last 50 years, government has recognized because of flooding, from about 9,000 deaths in the the potential for water scarcity to impose potential 1950s to 1,500 deaths by the early 2000s. This has been constraints on economic growth and development. achieved through an increase in overall investments in Almost 300,000 kilometers of river dikes and more flood control infrastructure by more than four times from than 87,000 reservoirs accounting for more than 700 the 1990s to the early 2000s. Much of this progress has billion cubic meters in storage have been constructed. been achieved through integration of investments within By 2000, China had built an estimated 85,000 dams, a comprehensive flood control system that includes with 22,000 considered large dams, almost half of all infrastructure, early warning systems, and a closely large dams globally (Fuggle et al. 2000). While these coordinated flood response structure that involves disaster dams provide benefits to different communities, it is response headquarters at central, river basin, provincial, unknown whether they optimized public utility. More municipal, and county levels. than 93 percent of China’s rural residents enjoy access to an improved water source. Hydropower capacity These achievements have been made possible is more than 170,000 megawatts, and significant through significant public investment, including more development in irrigation infrastructure enables China than US$200 billion spent between 1991 and 2010.1 to support 21 percent of the world’s population with China’s central government continues to commit only 9 percent of the world’s cultivated land and significant financial resources to water management. 6 percent of the world’s water resources. In 2011 alone, the government allocated 380 billion Significant investments have been made in flood yuan to improve wastewater treatment and improve protection and management to increase the protection of water-quality monitoring. Despite these significant people and economic assets and to sustain environmental achievements, China is facing acute challenges with functions. Flood control structures have been built in respect to both water quantity and water quality. This chapter is based on a summary of the Thematic Report prepared by Mark Radin of the University of North Carolina Chapel Hill. 44 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT As investment decisions become more complex, they Analysis and Summary require a set of tools to facilitate the decision-making process. As development progresses, project planning A CBA monetizes all major benefits and all costs and project economies are increasingly affected by associated with a project so that they can be various aspects of sustainability, including those of directly compared with one another, as well as to a financial, environmental, economic, social, and reasonable alternatives to the proposed project. A political nature. Issues of equitability, participation, and water investment analysis should start by identifying governance require considerations of environmental the challenge or challenges it attempts to address.2 trade-offs. This complexity implies that there is a A baseline set of conditions must be documented, as need for deeper analysis and evidence to substantiate well as a forecast on future conditions. This is essential each step in the project’s causal chain. These require for comparing project alternatives to a baseline without multicriteria considerations. Key to these considerations intervention. This is often complicated when a receiving is the application of economic analysis to facilitate the environment is already degraded from a legacy of analysis of these additional issues while maintaining the discharges. In these scenarios, the baseline degradation basic functions of economic viability. In many countries, may continue to extract environmental costs if no legislative initiatives have required cost-benefit analysis remedy is applied. (CBA) to ensure that large-scale investments meet CBA is generally considered the most comprehensive specific criteria, often related to efficiency. approach to economic analysis, and it requires the CBA is one of a range of analytical tools available following steps: (1) define the problem, (2) select to appraise investment decisions that assess the alternatives, (3) determine standing, (4) identify attributable welfare changes and, in so doing, the costs and benefits, (5) quantify the value of the contribution to specific policy objectives. CBA is an benefits and costs over time, (6) calculate the net objective method to facilitate a systematic evaluation present value, (7) compare the benefits with the of the effects of specific projects or policies on society. costs, (8) conduct a sensitivity test for uncertainty, Each alternative is evaluated by aggregating its positive and (9) consider equity issues and intangibles. and negative effects on the goods valued by society, Each of these steps is often subjected to external not just the immediate or direct effects, financial effects, influences or significant unknowns. Possible or effects on one group. These alternatives are then mechanisms to influence a CBA include limiting compared, valuing the gains and losses in monetary benefit or cost criteria or the set of alternatives terms. This approach is derived from the theory of assessed within the CBA. However, these issues can welfare economics. When countries borrow, and repay, be addressed by establishing a well-defined and funds for specific projects in which costs exceed benefits, inclusive planning process and a set of overarching the standard of living of the country declines. principles for CBAs. CBAs are most trusted and most useful when they involve multiple stakeholders in a Many governments have adopted CBA as an integral transparent process. part of the planning and decision-making process for water-related investments with the purpose of A CBA requires data on the project life or number of facilitating more efficient allocation of resources years to include in the analysis, the values of project and demonstrating the convenience for society of a benefits and costs expressed in monetary terms for particular intervention over possible alternatives. The each year included in the analysis, and the discount goal of a CBA is to provide the final decision maker rate. The period used to define the analysis should with as much information about an investment to be long enough to capture all potential costs and proposal as is relevant to inform the decision. It benefits, and it should not be assumed that the net provides an objective framework for weighing different benefits for one year will be repeated every year. effects occurring in different periods. This objectivity Despite the uncertainty involved in forecasting costs is supported by converting all effects into present- and benefits over long periods, many environmental value U.S. dollar terms. Even when full quantification issues can benefit from long time horizons. Explicitly of the effects is not possible, CBA can still be useful in considering and justifying assumptions underlying providing a clear decision-making framework. the forecasts improves implementation planning and identifies where more effort should be made to Research Objective improve the analysis. The objective of this study is to provide background It is important to identify those parties with standing, on international best practices and guidance to policy that is, whose benefits and costs should be analyzed. makers on the use of CBA for policy proposals. The Once costs and benefits have been identified and principles are meant to provide guidance in the quantified, they should be valued according to selection of alternatives, project criteria, project common criteria. This allows them to be aggregated beneficiaries, and decision criteria. and compared. The analysis should account for the 45 inherent risk in calculating the costs and benefits in Many goods and services from water-related the project or program. Finally, the benefits and costs investments are not traded in a market and are difficult should be aggregated across the parties with standing to value. Three main approaches are used to value and, through a discount factor, into a common period these goods and services: (1) revealed preference to determine whether the investment would improve methods that rely on existing market data to determine social welfare. These processes are complicated and how people value nonmarket goods, (2) stated can influence the outcome of an analysis. preference methods that use surveys to measure how specific populations value nonmarket goods and Because the aim of a CBA is to measure social services, and (3) benefit-transfer methods that use welfare, the notion of total economic value should existing data on valuations in one population to assume guide analysts in calculating the costs and benefits the valuation in another. For projects that decrease of the changes under analysis. This is particularly extreme events, such as flooding, cost-based estimates important for analyzing projects or policies that affect or avoided-cost approaches may be informative. the environment. CBAs take an anthropocentric view However, the nonuse benefits often require revealed and rely on human valuations to calculate costs and or state preference methods for quantifying society’s benefits. A typology described in the Millennium valuation of these goods. Water projects can often Ecosystem Assessment in 2005 is helpful for identifying involve both use and nonuse goods and services, which the environmental goods and services that humans complicates a CBA. value. The typology identifies four main types of ecosystem services: The three valuation methods produce uncertain estimates. Valuation studies of environmental projects • Provisioning services directly provide physical also suffer, because not enough is understood about resources for consumptive or productive uses and how complex ecological systems cope with pollution include water for drinking, irrigation, hydropower, or other damage, which makes quantifying the food, or other items such as medicine. benefits difficult. Another important critique is that • Regulating services maintain global and local these methods can only be applied to ecosystem conditions, such as the filtration of water, the services that people experience or understand and sequestration of carbon, and natural protection from that influence their choices in related markets, such floods, which support environments for human as where to purchase property or spend recreation habitation. time (Börger et al. 2014). This limitation is increasingly problematic as technology improves, and infrastructure • Cultural services are related to experiential activities projects can interfere with ecosystems that are poorly and include benefits from tourism, cultural practices, understood, like the deep sea. Many remote aquatic learning, recreation, and other psychological or ecosystems may provide significant but unseen emotional demands. services. Previous attempts to measure the value of • Supporting services are the ecological processes marine ecosystems focused on the values of wildlife, and functions necessary for sustaining the cycles such as dolphins or turtles (Börger et al. 2014). and processes that ensure continued survival of an ecosystem. CBA involves aggregating costs and benefits across individuals without explicit regard to the equity or When analysts use this approach to evaluate an otherwise of the distribution of those costs and benefits affected ecosystem, they can more easily identify those among individuals. However, decision makers would goods and services that are affected by a proposed normally wish to consider the identity of gainers and alternative. For water investments, the following losers resulting from a project (and the magnitude services are of particular interest: (1) water quality, of the gains and losses) in making a decision to (2) nutrient regulation, (3) mitigation of floods and proceed or not. In most cases, this need is best met by droughts, (4) water supply, (5) aquatic and riparian including a distributional incidence matrix, which sets habitat, (6) maintenance of biodiversity, (7) carbon out the identities of groups or communities that gain or storage, (8) food and agricultural products, (9) raw lose from the project or program and the expected size materials, (10) transportation, (11) public safety, of those gains and losses. In exceptional circumstances, (12) power generation, (13) recreation, (14) aesthetics, in which it can be justified by clear reference to and (15) educational and cultural values. Although established government policy, analysts may be some of these goods and services have easily justified in attaching differential weights to costs and monetized or quantified values, others do not. A benefits that accrue to particular groups. Such weights CBA should include values for all goods and services, and the basis for them should be stated explicitly. regardless of use or nonuse, and transparently identify However, a full unweighted analysis should always be criteria with unquantifiable values. presented. 46 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT The rate that converts future values into present costly to do so. As a result, decisions around values is known as the discount rate. Discount rates water resource management and development are used to convert benefits and costs into values in are increasingly be guided by multiple objectives one period. Standard economic analysis links social measured in different units. Multiple criteria analysis discount rates to the long-term growth prospects of (MCA) allows decision makers to include a full range the country in which the project takes place. This is of social, environmental, technical, economic, and because future benefits and costs should be valued at financial criteria. MCA is particularly helpful when a their marginal contribution to welfare, which will be single-criterion approach (such as CBA) is inadequate, lower with the higher growth and richer future project especially when significant environmental and social beneficiaries. However, this can be difficult for water effects cannot be assigned monetary values. investments, because environmental effects often occur over long periods that can extend beyond the CBA is an important analytical tool that can provide expected life of infrastructure projects. A discount rate economic criteria to help inform investment decisions represents a complex relationship between the value by assessing the attributable welfare changes and, in of consumption today and the value of consumption so doing, the contribution to specific objectives. A CBA in the future. Higher or lower growth prospects monetizes all major benefits and all costs associated would normally imply a higher or lower discount rate, with a project so that they can be directly compared respectively, for a particular country. A discount rate with one another, as well as to reasonable alternatives for environmental goods and services is an estimate to the proposed project. The following recommendations of how the current population values those services are based on international best practices and intended for the future generation. In addition, some argue that to guide measures to strengthen the multicriteria a constant discount rate does not adequately reflect framework for decision making around future how people value benefits over time. They argue for investments in water resource projects and programs. declining rates, which give a greater weight to long- The first recommendation is for China to establish a set term benefit. Regardless of the social discount rate of water investment priorities to help guide investment chosen, it is good practice to provide a sensitivity decisions and CBAs. These principles can include both analysis that calculates the net present value of the quantifiable and nonquantifiable priorities such as project for a range of discount rates. equity, specific environmental standards or goals, or An objective method for applying the results of a project approaches. CBA is essential for informing decision making. The The second recommendation is to include a CBA or concept of Pareto efficiency is that only those projects a requirement for assessing costs and benefits into or policies that can make at least one person better off legislation or a regulatory framework and provide without harming any other person should be adopted. guidance on adhering to this requirement. This would However, a more common approach for interpreting help ensure that planners incorporate costs and benefits CBA results is the Kaldor-Hicks approach, which accepts into their planning and that society’s benefits are projects when the economic benefits are greater than considered, rather than just specific populations’ benefits. the economic costs. This approach is based on the hypothetical scenario that if those who gained from a The third recommendation is to standardize the project fully compensated those who lost, those who project planning and assessment process to help gained would still be better off. ensure transparency and to encourage collaboration efforts for the cost-benefit assessment. Aligning the Conclusions and Suggestions environmental assessment with the CBA allows the environmental costs and benefits of alternatives to be Continued demand for water for sustained growth, captured as part of the feasibility studies. coupled with scarcity, growing uncertainty, greater extremes, and the challenges of fragmentation, The fourth recommendation is to support additional requires increasingly complex investments in academic research into both the environmental effects infrastructure, along with institutional strengthening of water infrastructure projects and the local valuations and improved information management. To deal of ecosystem services. These efforts could improve the with these interlinked challenges, countries need planning processes and decrease the costs of CBAs. to continuously improve the management of water The last recommendation is to incorporate qualitative resources and associated services to strengthen water efforts in defining project beneficiaries and selecting security. alternatives to analyze. This can help improve support Given the complexities and shifting societal values, for the results of the analysis. In addition, using it may not be possible to arrive at a comprehensive qualitative measures can help analysts define the monetary value of benefits, or it may be prohibitively parties with standing for a CBA. 47 Box 7.1  Example of CBA with Ecosystem Service Valuation in China An ecosystem valuation approach to a cost-benefit Nansi Lake provides recreation and tourism benefits, analysis (CBA) was used by Lei et al. (2011) to measure and the study used data from the Weishan statistical the utility change associated with rehabilitation of land bureau, to estimate a tourism value for restored along Nansi Lake, in Shangdong province, aimed at wetland. In addition, the analysts included the value of improving water quality as part of the South-to-North the wetland’s ability to improve water quality. Water Diversion Project. This approach helped identify which farmland should “be converted to wetland in The analysts found that the project had a significant the watershed-scale wetland rehabilitation in Nansi economic return; however, the farmers on the normal- Lake … to choose priority in restoring farmland areas productive and vegetable farms were less well off and determining the amount of payments for ecosystem after land conversion because they only received services” (Lei et al. 2011, 788). compensation for 2 years. To rehabilitate the wetland, the government was The analysis shows that society would be better off paying farmers to convert their farmland into wetland if the government continued to pay these farmers to reduce pollution and restore the ecosystem. Once to remain enrolled in the program and restore the a farmer enrolled, the project compensated farmers wetlands. This provides significant benefits: 100 percent of the previous year’s income from the For the upstream area, after wetland rehabilitation, farmland for the first year and 60 percent of that same the opportunity cost will be 1.88×108 Chinese amount during the second year. Starting in the third yuan each year, including reduction of year, farmers would no longer be compensated. biomass value and increase of tourist income. The Shandong Environmental Protection Bureau And for the downstream area, the wetland collected data on potential farmland to rehabilitate and rehabilitation will reduce the cost of water collected plot-specific data, including information on purification at a value of 1.14×109 RMB, 6 times the crops grown, the pesticides used, and the economic the upstream opportunity cost.… In addition, after return, of different parcels of land. These data helped wetland rehabilitation, each hectare of wetland the analysts divide the farms into low-productive, will potentially increase the local tourist income at normal-productive, and vegetable farms to estimate a value of about 4,877 RMB each year in the long- the financial returns for different farmers. run. (Lei et al. 2011, 795) Box 7.2  Who Should Perform the Cost-Benefit Analysis Deciding who should perform cost-benefit analysis One question is whether objectivity can ever be (CBA) for a new project presents a dilemma because ensured if the analysis is entrusted to a single two desirable attributes, familiarity and objectivity, are group. The analogy with legal systems may be unlikely to be found in the same group. Those who helpful. The task of eliciting an objective verdict are most familiar with the project are usually those does not rest on the assumption that either the who are promoting it; they may not be sufficiently prosecution or the defense will be objective. The objective to conduct an unbiased assessment of costs truth is expected to emerge in the debate between and benefits. the two. Some propose that borrowing countries should carry out The accountability system in development agencies is the cost-benefit analyses for their projects. Objectivity typically built around the assumption that those close would still be critical because project promotion exists to the project will provide objective information. Some both in client countries and in the World Bank. One agencies are overseen by independent groups, such variant of this proposal would be to entrust the CBA to as the World Bank, but these groups usually do not an independent agency within the borrowing country, assess and rate projects until after they have closed. if such an agency exists and functions effectively. An independent voice to check the CBA and the quality Consultants hired by project promoters are not of monitoring and evaluation plans before a decision necessarily the answer, as they may have an interest in is made to proceed with the project could strengthen securing the next consulting contract. accountability. 48 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Notes A midterm analysis or ex post analysis can help policy makers stop or expand a project, as well as assess 1. This does not include investments made in water supply whether previous projects had the intended impacts networks and sewage systems at the provincial level and should have been built, which can help improve or through the Ministry of Housing and Urban-Rural future CBAs. A complexity in ex post analysis is the Development. difficulty of comparing the project or policy to a coun- 2. Although this chapter focuses on the planning process terfactual world in which the project or policy never and ex ante CBAs, other types of CBAs are possible. occurred. C HAPT E R 8 Policies on Water Prices, Taxes, and Fees and Their Implementations Background not yet complete. Water management organization is fragmented; water user engagement in setting up China is facing multiple water challenges, including and adjusting water prices is insufficient; water fee water scarcity, water pollution, and water ecological measurement and collection are not scientific; the water deterioration, generating substantial effects on water price supervision mechanism needs to be improved; security and an ecological civilization. As an economic and water price collection, usage, and management instrument for better water development and utilization, are not well regulated. In particular, institutional flaws water price has played an important role in promoting exist in collecting and using water resource, wastewater resource saving and environmental protection. treatment, and wastewater discharge fees. Third, Governments at all levels in China have set their water the water supply pricing system is not complete. The prices, and relevant departments are in charge of water distributions and differences of various prices are not fee, water resource fee, and wastewater discharge fee reasonable, and fees and taxes for water suppliers are collection. Fee usage is also regulated. However, the not scientifically applied. water price formation and water governance market mechanisms are not yet complete. This project aims to study the policies on water prices, taxes, and fees in China and their implementations and First, a reasonable water price formation mechanism to offer corresponding suggestions on reforming and has yet to be established. Water prices are still relatively developing the water security market mechanism with low, and the water price structure is not reasonable. Chinese characteristics to provide decision support for The water resource fee occupies a too small proportion the formulations of related laws, regulations, and other and, in some places, the wastewater treatment fee is institutions. not included in water supply prices. The role of water prices in providing cost recovery for water suppliers, compensating environmental costs, and incentivizing Research Objectives water users to save water is not effective. Second, the Guided by the scientific development concept, water price management system and mechanism are this study aims to offer policy suggestions on This chapter is based on a summary of the Thematic Report prepared by Yuxiu Zhong, Jian Fu, and Peilei Li from the Development Research Center of the Ministry of Water Resources. 50 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT China’s water prices, taxes, and fees and their Development of Water-Related implementations within the framework of water Value Forms in China security governance. It addresses the economic attributes of water resources and highlights water Water Prices supply’s basic functions as a common good. It aims to provide suggestions for establishing reasonable The water supply price from water conservancy water price formation and water governance market projects has experienced changes from nonprofit water mechanisms with Chinese characteristics to determine into commodity water. Ratification, collection, and the pricing mechanisms’ role in prioritizing water management of the water price have been legalized. allocation, promoting resource conservation, and A reasonable water price–setting system has been providing environmental protection. initiated and gradually developed. The water pricing and cost supervision systems for water conservancy projects have been established, and the water pricing Analysis and Summary system has become increasingly scientific. The urban water pricing system has shifted from a single pricing Breakdown of Water-Related Value Forms system to block or progressive pricing systems. Water, involving both quantity and quality, is an Categorical pricing has been gradually developed in irreplaceable natural and environmental resource that is a scientific way. The water pricing system has been required for production and human survival. In certain gradually established in an increasingly scientific economic and technological conditions, it can serve as manner. In addition, the water price supervision and fresh water that is directly used or reserved for future evaluation system has been established to replace cost use in the society, taking part in natural water cycles and and price surveys, as well as price approval systems. affecting economies. Analyses on the values of water resources have been mainly based on the western utility Water Fees and Water Taxes theory, Marx’s labor value theory, ecological value theory, The water resource fee has been established with a and the like. The new value system, which combines gradually improved collection management system and the utility value theory and the labor value theory, is increasingly strict collection management measures. In being developed and gradually recognized by the public. the future, the water resource fee may be changed into The Chinese constitution and the Water Law of the a water resource tax. The wastewater treatment fee People’s Republic of China stipulate that water resources has been growing rapidly since it was established, but are state owned. The realization of ownership is the it is still at a lower level than the global average. The inevitable result of a market economy. As a commodity, wastewater discharge fee has been collected for a long water resources have economic attributes, which are time with mature management measures and will be noticeable in absolute rent, differential rent, convertible transformed into an environmental tax. China’s water water assets, water prices, and water value flows. resource tax is still under exploration. A water resource tax reform pilot program has been set up in the Hebei China’s major economic instruments are pricing, taxation, province. administrative fees, and other profit-making charges. In terms of the management of water resource utilization, the main economic means include water prices, water Status and Future Trends of fees, and water taxes. China’s water prices are classified the Water Price in China as the water supply price from water conservancy projects and the urban water price. Water fees include Policies administrative fees and other profit-making charges. At the central government level, there are several The administrative fees include the water resource fee, relevant laws and regulations, such as the water the wastewater treatment fee, and the water fees for law, price law, and Regulations on Farmland Water nonresidential water use beyond water quotas, while the Conservancy; various management measures, such as profit-making charges are categorized into agricultural “Management Methods of Water Suppliers in Water water fees, tap water fees, and other fees paid on the Conservancy Projects” and “Management Methods basis of the water price. The water tax is not a real tax. of the Water Price in Cities”; and many documents, Instead, it is a general name of all taxes in the field of including “Circulars of the State Council General Office water governance, including the water resource tax. on Promoting Water Price Reforms to Boost Water In China, the most common water-related value forms Saving and Water Protection,” “Circulars of the National include the water price, the water resource fee, the Development and Reform Commission and the Ministry wastewater treatment fee, wastewater discharge fee, of Construction on Relevant Matters of Water Price and the water resource tax. Management in Cities,” and Opinions of the State 51 Council General Office on Pushing General Reform of The urban water price is also expected to be the Agricultural Water Price. At the local government determined categorically. The tiered water pricing level, many corresponding documents have been system for urban residents is expected to be expanded. released to clarify management systems, pricing The system of progressive pricing for excessive principles, water price structures, water fee collection, nonresidential water use will be promoted extensively. and utilization and management of the hydroproject Finally, the water price adjustment procedure will be water price, urban water price, agricultural water price, implemented strictly. reclaimed water price, and so forth. In contrast, the agricultural water price will be directly collected from villages or households. A Status discounted price for water use within the water quota and a progressive price for excessive use will The water supply prices for water conservancy projects be implemented. A categorical water price will be include the agricultural water price and nonagricultural implemented for different types of crops. Precise water price. In practice, the water supply price for an agricultural water subsidies will be released. Finally, agricultural water conservancy project refers to the water-saving incentive mechanisms will be set up. water price for a lateral canal without considering the water price for the canal at the last stage. In some The reclaimed water price will be set in accordance areas, water prices vary when water is used for different with a few principles: cost recovery, reasonable food crops, economic crops, husbandry, and so forth. profit, high price for high quality, fair burden, and use orientation. It will also be adjusted according to the Urban water uses are divided into urban residential cost and to market supply and demand. The reclaimed water use, nonresidential water use, and special water water price should be lower than the tap water uses. The special water use price is higher than that of price. The government should subsidize enterprises nonresidential water use, while both higher than the using reclaimed water. The price of reclaimed water residential water price. In most cities, a tiered pricing is expected to be determined categorically. The system has been adopted for residential water. In a relationship between reclaimed water and tap water few cities, a progressive pricing system for excessive should be determined reasonably. Finally, the price nonresidential water use has been implemented. linkage mechanism between reclaimed water and tap The agricultural water price is the final water price water will be established step by step. for users, including the water supply price for water conservancy projects (lateral canal or above) and the water price of the canal water system at the last stage. Status and Future Trends of the In 2009, as assessed by the Development and Reform Water Resource Fee and the Commission and the Price Bureau of the Ningxia Water Resource Tax in China Autonomous Region, the water price of the Yanghuang Main Canal for the Yanhuanding area was approved Status of the Water Resource Fee to be 0.157 yuan per cubic meter, and the water price The Water Law of the People’s Republic of China has for final users was set at 0.174 yuan per cubic meter. laid the legal foundation for the water resource fee. In some areas in Sichuan, Guangdong, and Zhejiang Regulations on Management of Water Abstraction provinces, the agricultural water price is exempted, Permission and Water Fee Collection and “Circulars on while the tiered water pricing system is used in some Relevant Issues of Standards of Water Fee Collection” areas in Ningxia province. also provide references for the management of water As of 2010, 37 cities and counties in 18 provinces resource fees. Many local governments have launched (autonomous regions and municipalities), Beijing and programs for water resource fee collections. As in 2018, Tianjin included, have set a reclaimed water price and the water resource fee is collected in 31 provinces have collected reclaimed water fees of 249 million (autonomous regions and municipalities) in China. yuan in total. Status of the Water Resource Tax Future Trends The implementation of a water resource tax is in the The water supply price for water conservancy projects is pilot period. Since the official start of the pilot period expected to be determined categorically. Different projects on July 1, 2016, the Hebei provincial government will be subject to different water price management. has collected a water resource tax to an accumulated The policy of “industries subsidize agriculture” may be amount of 716 million yuan, a 100 percent increase implemented, raising the industry water price to cover compared with the water resource fees collected in the partial costs of agricultural water uses. same period in 2015.1 52 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Future Trends of the Water Resource Fee economic leverage for water saving. Water efficiency has been improved, and optimal allocation of water Several changes are anticipated for the water resource resources has been promoted. In addition, people’s fee. The pricing mechanism will be more scientific and livelihood and basic water use have been guaranteed. reasonable, and the water resource fee standards will The price of reclaimed water is lower than that be raised. The tiered pricing system or the progressive of tap water to improve the economic efficiency pricing system will be promoted, as will the fee-to-tax of enterprises. The water supply price for water reform that is in the pilot phase. conservancy projects provides project operators with an important source of maintenance funding, ensuring Status and Future Trends of Wastewater the sound operation of managers in irrigation areas. Treatment and Discharge Fees in China The reform of the agricultural final water price has solved the challenges for maintaining canals at the Status of the Wastewater Treatment Fee last stage. Regulations on Urban Drainage and Wastewater Treatment stipulates that discharging units and Problems individuals should pay the wastewater treatment fee The water price for water conservancy projects is still in accordance with the relevant regulations of the much lower than the water supply costs. The water state. “Circulars on Relevant Matters of Formulating and supply price for agricultural water conservancy projects Adjusting Wastewater Treatment Fee Standards and Other is generally low. The pricing method for the water price Issues” and “Measures of Management of Collection and is too simple; charging by the acre is still the main Use of the Wastewater Treatment Fee” provide details charging method in most irrigation areas, and charging on the standard, collection, use, and management of the by a measured amount is not popularly used. In only a wastewater treatment fee. So far, 36 large and medium- few small irrigation areas, tiered or progressive pricing size cities have started to levy the wastewater treatment systems are implemented for the agricultural water fee, which is generally less than 2 yuan per cubic meter. supply as pilot projects. At the end of 2012, the average residential wastewater treatment fee of these cities was 0.81 yuan per cubic The overall level of the urban water price is still low. meter, accounting for 29.5 percent of their water price. The comparison between water prices for different The average urban nonresidential wastewater treatment uses is not reasonable enough. The price formation fee was 1.13 yuan per cubic meter, accounting for mechanism is not perfect. Metering and monitoring 27.8 percent of their total water costs. facilities need to be improved. The overall level of the agricultural irrigation water Status of the Wastewater Discharge Fee price is also low. The agricultural irrigation water price Regulations on Management of Collection and Use is lower than the cost. The actual agricultural collection of the Wastewater Discharge Fee and “Measures rate is also low. of Management of the Collecting Standard of the There is no reasonable price difference between Wastewater Discharge Fee” stipulate that enterprises reclaimed water and tap water. There is no pricing and individually owned businesses that directly policy for reclaimed water. There is no clear pricing discharge pollutants into the environment (hereafter basis, and there are no clear pricing procedures. called polluters) should pay wastewater discharge fees Reclaimed water prices on water supplies of different in accordance with the provisions. qualities have not been established. Future Trends Deficiencies in Meeting the Objectives Among future trends, a comprehensive wastewater and Requirements of Water Governance treatment fee collection system is expected to be Meeting the objectives and requirements of water established, and the collection rate is expected to be governance means facing several issues. First, increased. In addition, the wastewater discharge fee the water price for water conservancy projects will be replaced by an environmental tax. is low. Water conservancy project maintenance and repair lack funding, and engineering facilities Effects, Problems, and Deficiencies are aging badly. Second, the ratio of groundwater of the Water Price price to surface water price is unreasonable, and the cost of groundwater use is too low to curb Regulating Role and Effects the overexploitation of groundwater. Third, there In terms of water prices, awareness of commodity is not a reasonable price difference between the water has been developed widely to provide effective unconventional water price and the conventional 53 water price. The substituting role of reclaimed water Deficiencies in Meeting the Objectives is not fully effective. Fourth, the agricultural water and Requirements of Water Governance price is low, and irrigation water is measured by irrigated area instead of water use. Thus, farmers do In terms of water governance, wastewater fees cannot not have high enthusiasm for water conservation, reflect the principle that polluters should pay. Their which results in both water shortages and water role in reducing pollution discharge and in promoting waste. water resource utilization is weak. Wastewater fees also cannot meet the funding demands for expanding wastewater treatment facilities and promoting pollution Effects, Problems, and Deficiencies prevention and control. of the Water Resource Fee Regulating Role and Effects Conclusions and Suggestions Through the water resource fee, paid use of water Reform of the Water Price, Water resources is arranged preliminarily, and water Resource Fee, Wastewater Treatment conservation is promoted. The fee provides funds for the development, use, and protection of water Fee, and the Water Resource Tax resources. The agricultural water price formation mechanism should be reformed comprehensively. The cost of Problems the agricultural water supply should be assessed in a scientific way. A mechanism of water price allocation Several problems must be addressed in relation to between the government and farmers needs to be set the water resource fee. The overall collection standard up. Financial subsidization should be promoted to cover is low and lacks a unified calculation method. In expenses related to the operation and maintenance of addition, the collection rate of the water resource fee irrigation and discharging projects. Discounted water is relatively low. Water resource management is not in prices for uses within the water quota and progressive place, and there is no progressive pricing system for prices for excessive water use should be promoted. the water resource fee in most regions. Water resource Enhanced support should be given to promote tax reform has just started. agricultural water supply metering facilities and the agricultural water fee collection system, promoting Deficiencies in Meeting the Objectives water supply metering and door-to-door allocation, and Requirements of Water Governance charging, and billing”. The water resource fee cannot reflect the scarcity The nonagricultural water price should be actively of water resources effectively. The regulating role reformed, and efforts to adjust the nonagricultural for water saving is limited. In addition, funding for water price for water conservancy projects should water resource development, use, and protection is be enhanced to reach cost recovery and reasonable inadequate. profitability as soon as possible. Deepening water price reform in cities starts by Effects, Problems, and Deficiencies of facilitating comprehensive urban water reform. Urban water use should be categorized as urban residential Wastewater Treatment and Discharge Fees water use, nonresidential water use, and specific water Regulating Role and Effects use. Commercial water prices should be the same as industrial water prices. Conditions for water price By implementing wastewater fees, pollutant discharges reform must be created in all cities and allow room have been reduced. At the same time, water recycling for water price rises. It is necessary to design a better has increased. tiered water pricing system and reduce the effects on low-income households. Accelerated improvement Problems of the progressive pricing system for excessive nonresidential water use will lead to better results. A key problem related to the wastewater treatment fees is that standards are not unified and are relatively The paid-use system for water resources and the low. There are no mature price differences among collection and the management system for water treatment of wastewater of different pollutants and resource and wastewater treatment fees need to loads. In addition, neither a collection mechanism nor be improved. Water resource fee and wastewater a management system for wastewater treatment fee is treatment fee standards should be raised. The water in place. resource fee for self-prepared water sources should 54 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT also be raised gradually. The usage of collected water cost assessment should be amended. Statistic and resource fees should be well regulated and dedicated assessment mechanisms should be established in to specified issues. In addition, the water resource fee terms of the average costs of the water supply sector, should be exempted for reclaimed water to promote with a market mechanism introduced to facilitate the its utilization and replace conventional water sources. reduction of water supply costs. Wastewater treatment fee standards should be raised Coordinating water price reform with other reforms to cover the cost with minor profitability. involves regulating the use of collected water fees To promote water resource tax reform, lessons from and encouraging water users to supervise the water the Hebei pilot experiences should be reflected and the suppliers’ use of collected water fees. Enterprises pilot program should be expanded. A national water need reasonable investment returns and profitability. resource tax reform should be planned. Institutional reform of the management of water engineering projects must be deepened. To improve the tax and fee system for water suppliers, tax and fees should be exempted for reclaimed water. To strengthen relevant legal system construction, For example, an enterprise value-added tax can be the “Management Methods of Water Price for Water exempted or income tax can be halved for reclaimed Conservancy Projects” should be amended as soon water suppliers or enterprises to promote reclaimed as possible to improve the water pricing system. water utilization. Experiences from agricultural water price reform should be incorporated. Discounted water prices should be Policy Suggestions for the Construction of applied to water uses within the water quotas, while progressive water prices should be applied to excessive a Water Governance Market Mechanism water uses. Progressive water prices for nonagricultural with Chinese Characteristics water uses should be explored. The water pricing To deepen the water price reform and to improve mechanism in which industries subsidize agriculture the water pricing mechanism and system, the and urban subsidizes rural should be established. The first step is to establish a reasonable water price “City Water Supply Price Management Methods” should formation that is able to reflect changes in water be amended to “Urban Water Price Management demands and supplies. The water supply price Methods” to legalize water supply price management should reflect the water values and demands in in counties. “Rural Water Supply Price Management different regions of different sources for different Methods” should be formulated to regulate rural users. The second step is to establish a water water supply water prices. “Water Engineering Projects pricing system that encourages reclaimed water to Maintenance Fund Use Management Methods” should replace conventional water resources. Therefore, be promulgated to regulate the use of the funding for reclaimed water should be cheaper than tap water, maintenance. and governments should subsidize reclaimed water. Third, seasonable water prices should be adopted Acknowledgments according to different cities’ characteristics to ease the seasonal water conflicts. Fourth, the groundwater This project has benefited from support from leaders price should be increased to promote groundwater and experts of various departments of the Ministry protection. Finally, a water pricing system should be of Water Resources and provincial governments, who established that contributes to water conservation have provided the latest data and suggestions. We and pollution reduction. thank all experts who have provided useful suggestions for this project. To strengthen cost constraints and improve water use efficiency, dynamic water price formation and Note evaluation mechanisms should be established. 1. The resource fee was collected by the water department Supervision and evaluation of enterprises’ operational based on water use data that are difficult to obtain costs and other related costs should be enhanced without sufficient monitoring capacities and are often to calculate water supply and treatment costs. In underreported by water users. The water resource tax is addition, a water supply price monitoring mechanism collected by the tax department based on production data should be improved by calculating the average and related water quotas. Therefore, changing the water societal costs of regional water supply engineering resource fee to a tax enhances the implementation of the projects. Management regulations on water supply value charging and collection system. C HAPT E R 9 Flood Risk Management and Flood Insurance Background and challenges in flood risk management, to establish flood risk management mechanisms, to operationalize Because of the effects of monsoon climate and three such mechanisms, and to develop a more complete tiers of topography, the spatiotemporal distributions flood risk management system. The roles of flood of China’s precipitation are highly uneven. Moreover, insurance and land management in flood-prone areas, socioeconomic development is highly concentrated in as well as flood risk sharing and flood recovery capacity flood-prone areas, making flooding the severest natural improvement, should be highlighted to fully implement disaster in China. From ancient times, floods have flood insurance management in China and support the posed serious dangers to the Chinese nation. China sustainable development of social economies. started and has been benefiting from flood control. Since 1949, through long-term river basin management Research Objectives in the Yangtze, Yellow, Huai, and Hai River Basins, flood This study analyzes China’s flood characteristics and damage has been effectively controlled. Flood prevention the weaknesses of China’s flood prevention and and control structures in China’s major rivers have been disaster reduction. It then analyzes the causes and able to deal with the most serious floods since 1949, evaluates the overall status and context of China’s flood ensuring steady and continuous growth of China’s disasters. Flooding effects on China’s water security economy. In the twenty-first century, the characteristics and socioeconomic development are examined, and of China’s flood risks have changed significantly because improvements to the flood management system and of the compounded effects of global climate change and flood insurance are proposed. rapid urbanization. Requirements for flood prevention and control keep increasing along with socioeconomic The research includes tasks from five aspects. The development; difficulties related to flood prevention and first aspect is flooding effects on social, economic, control have also increased. and environmental aspects. The second aspect is on context and challenges of China’s flood prevention and Therefore, it is necessary to review the overall status control, as well China’s flood prevention and control of China’s flood risks, to analyze the existing problems capacity. The third aspect is flood disaster evaluation, This chapter is based on a summary of the Thematic Report prepared by Liuqian Ding from the Institute of Water Resources and Hydropower Research under the Ministry of Water Resources. 56 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT including overall evaluation, evaluation of typical areas, century, flood damage occupies around 1.41 percent of and flood causes. The fourth aspect is flood insurance the national gross domestic product every year. In years research, including the status of and problems related with large floods, the rate can go up to 4 percent. to flood insurance in China. The final section focuses on institutional improvement, including the flood risk Flood Control System management system, land use management system, flood prevention structure, emergency response Flood prevention structure has been established, mechanism, and flood insurance mechanisms. comprising blocking, drainage, and detention and diversion projects, such as reservoirs, dams, and flood detention areas. Major rivers are equipped with Analysis and Summary relatively high flood-defense levels. For example, China’s Flood Prevention Structure the upstream and main tributaries of the Yangtze River can defend against floods with a 20-year return Flood Disasters in China period, while the downstream areas can cope with floods on the scale of those that occurred on the Through its location next to the Pacific Ocean, China river in 1954. The downstream areas of the Yellow is affected by land-ocean circulation, monsoons, and River are equipped with a flood-defense level with tropical cyclones. Its precipitation decreases gradually a 1,000-year return period, while a 40-year return from southeast to northwest. The largest storms in the period is found in the middle reach. Over half of the east are close to world records. The middle and lower flood-prone cities in China have reached the national reaches of seven major rivers and coastal areas have standard of flood prevention. Coastal cities, such as abundant rainfall, 60–80 percent of which is concentrated Shanghai, are equipped with flood-defense levels during 4 months. Meanwhile, 67 percent of the national against a 100- to 200-year return period. Flood population, 35 percent of farmland, 90 percent of large prevention sections in other important cities also have and medium cities, and 80 percent of agricultural and a 50- to 100-year return period, while most other industrial added value are located in China’s flood-prone regions are equipped with flood-defense levels lower areas. Flood disasters significantly affect societal safety than a 20-year return period. and socioeconomic development. China is one of the countries that suffer from the severest flood disasters. In addition to improving engineering infrastructure, nonstructural solutions should be facilitated to improve From ancient times, flood disasters have been the evil overall flood prevention and control capacity. A series of of Chinese civilization. Flood control has played a vital laws, such as the water law and flood prevention and role in maintaining social security and power change. control law, were issued. A flood management system Failure in flood control has resulted in social turbulence has been constructed, with flood-focused emergency and regime change. Flood disasters have had severe response agencies at all levels and a specialized effects on human lives and social development. For emergency response team. A flood forecasting and example, in the 1915 Pearl River flood, Guangzhou City warning system has been established, and a flood was submerged for 7 days and casualties exceeded emergency plan covering all levels of government and 0.10 million people. In the 1931 Yangtze River flood, flood situations has been formulated. A scientific flood the flood-caused death rate reached 0.15 million management system has been established, comprising people. Total casualties exceeded 0.40 million people blocking, drainage, and detention and diversion because of the subsequent plague and famine. After measures. the People’s Republic of China was established, with the construction of flood control infrastructure and increased flood control capacity, the number of deaths Flood Control Context and Challenges caused by floods has constantly decreased. In 2000–16, Global Climate Change the flood-caused death rate was around 1,248 deaths per year. Among these, 909 deaths were because Against the backdrop of global climate change, the of small river floods and torrential floods. With rapid average temperature of Earth has increased 0.7°C–1°C, economic development, flood-induced economic which increases evapotranspiration and atmosphere loss has been enlarged. In the 1950s, flood-induced humidity and leads to increases in the frequency and economic loss was 219,000 yuan per square kilometer, severity of extreme precipitation, uncertainties in but it rose to 1,373,000 per square kilometer by large river floods, damage from small and medium the 1990s, an increase of more than five times. The river floods and torrential floods, and urban flooding structure of the damage has also changed: agricultural events. Moreover, the increase in the average global damage has decreased, while damage in industrial, temperature leads to polar ice cap melting and sea- transport, electric, and telecommunication sectors has level rise, decreasing the capacity of coastal cities to grown significantly. Since the start of the twenty-first defend against storms and so forth. 57 Modern Urbanization and Industrialization as negligence in maintenance. The lack of routine monitoring and safety evaluations leads to hidden The expansion of urban areas; concentration of problems that remain unseen for a long time. A long- industries; heat emission from factories, vehicles, and term maintenance mechanism needs to be established. domestic energy uses; and effects from architectural structures have increased the heat island effect and rain island effect, and the amount and intensity of Legal Foundation rainfall have increased significantly. Impermeable Flood risk management is almost nonexistent in the areas are growing because of the construction of existing legal system. Because of a lack of legislation urban houses, roads, and squares. Infiltration of and supervision, project development often neglects precipitation decreases, while surface runoff increases. flood risks and occupies flood-prone areas, which may Flash floods often appear with increased peak lead to severe flood damage and human casualties. discharge. Flood risk zoning, flood-prone land use, and flood risk disclosure, as well as education, need to be advanced. Meanwhile, information- and technology-driven industrialization has increased cities’ dependence on the information system unprecedentedly. Affected Land Use Planning and Management areas are larger than flooded areas. Indirect losses Land use planning is not strictly implemented in flood- could be a few or even ten times greater than direct prone areas. Flood management planning, land use losses. Population concentration, urban expansion, planning, and other relevant planning sectors do not industrial concentration, and lifestyle transformation match. Land is not properly developed in some regions have all posed new requirements on flood control and according to relevant laws and regulations. Improper drainage. Green infrastructure must be added to build occupation of rivers and lakes prevails, which leads to resilient cities and explore intensive, smart, green, and a decrease in regional flood detention capacity and to low-carbon flood control measures. blockage of flood drainage. Sponge city construction is at the starting stage, while sponge city infrastructure Poverty Alleviation and is insufficient. Some river occupation by urban Societal Development construction still exists. Poor areas in China are mainly located in the middle and western regions, especially mountainous areas. Flood Emergency Management These areas have frequent sudden rainfall. Watercourses In terms of flood emergency management, are steep, with rapid flow rates and damaging power, coordination of governments of different levels and and therefore warning and prevention difficulties, in across departments is insufficient. The planning some sections, negatively affecting poverty alleviation systems in some areas are incomplete or infeasible. in poor mountainous regions. Achievements in poverty The accuracy of monitoring, forecasting, and warning alleviation can be wiped out by serious floods. Flood- should be improved. Emergency response at the basic induced poverty is common. The national poverty level is insufficient. Relevant technologies are still alleviation strategy has posed higher requirements weak. Society participation in flood disaster reduction on flood prevention and control. Weaknesses in flood is insufficient. Education methods are simple and control and drainage infrastructure must be addressed singular, and education coverage is insufficient. Public to reduced flood effects and ensure poverty alleviation knowledge and awareness of and capacity for flood achievements, to promote the construction of a well-off disaster reduction should be enhanced. society in all aspects. Flood Insurance Main Problems Related to Flood China has not yet established national insurance for Prevention and Control flood damage. Since the 1980s, China has promoted a few pilot programs on types of flood insurance. Infrastructure However, because of lack of knowledge by local Some flood prevention infrastructure has not been governments and the public, the pilot programs constructed according to the requirements. Flood- were not advanced and faced difficulties in collecting defense infrastructure against torrential floods and insurance fees, along with other issues. The existing floods in small and medium rivers is insufficient. Many flood-related insurance types include commercial rivers have no defense infrastructure. Some cities’ property insurance and policy agricultural insurance. flood-defense levels do not meet the requirements. In such insurance policies, flooding is included as The existing drainage systems are insufficient. one of the natural disasters. However, because the Existing projects still face maintenance issues such insurance rate is not correlated to the actual flood risks, 58 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT insurance areas are mainly in flood-prone regions. Once should be reduced in urban construction. (2) Urban a flood happens, insurance companies face substantial construction should not occupy natural environments payment requirements and therefore have low interest such as rivers and lakes. Development should be in offering such policies. limited in flood-prone areas, and construction in low land should be avoided. (3) For large urban Suggestions for a Flood Risk Management development and construction, planning should be and Insurance Mechanism appropriate for the developed areas, with construction of water systems to ensure sufficient flood detention Establish a Flood Risk Management System and drainage capacity and good water ecology. Based on in-depth understanding of flood risk In flood-prone rural areas, green-gray infrastructure characteristics and changing patterns, a flood measures mainly include the following. (1) Land management system that suits China’s characteristics overexploitation should be limited to avoid severe soil should be incorporated into the existing legal system. erosion and water loss and to protect forest and grassland Legal documents such as the flood prevention law from severe damage. (2) Rivers and lakes should not be should be amended to advance the implementation occupied to ensure flood detention spaces and capacity. of flood risk management measures. The roles and responsibilities of different departments should be Improve the Flood Control and clarified in the legal framework and the coordination Drainage Infrastructure System mechanism. Institutional reform should be facilitated to enhance interdepartmental coordination and capacity Flood protection planning should be scientific, building. In the law’s implementation, law violation and considering flood patterns and socioeconomic poor enforcement should be eliminated to establish requirements both upstream and downstream. stable financial assurance, strengthen research and Coordination among planning sectors is particularly technical support of flood risk management, and raise important. Flood protection planning should concur public awareness. In terms of securing people’s lives, a with other plans in the respective region and basin, as flood risk management system should be established well as other comprehensive land resource planning. to mitigate the risks to a mild level and maximize the Regional flood protection planning should concur with benefits of land utilization and even flood resource the respective river basin flood protection planning. utilization in flood-prone regions as well as to The flood prevention system in all river basins attain comprehensive, coordinated, and sustainable should be accelerated to meet the corresponding development. requirements to reach the target of no severe casualties in large floods. Urban flood prevention and Enhance Land Use Management drainage construction should be enhanced. Dikes in medium and small rivers, as well as in important Land use in flood-prone areas should be limited to mountainous regions, should be strengthened. Different ensure enough flood detention and drainage space. preparation and scheduling plans should be improved Development in any form should be prohibited in the to advance the scientific scheduling of flood prevention river. Limited development can be allowed in some infrastructure. delta areas for flood detention, on the condition that this does not affect flood detention capacity. New dikes The maintenance of flood prevention and drainage cannot be built for land development without a flood infrastructure should be enhanced. Skilled workers and assessment. funding channels should be established. Technology innovations should be facilitated to establish flood Land in flood detention areas should be reasonably prevention infrastructure operation and a management used to ensure flood detention capacity. Land utilization platform and to enhance infrastructure monitoring so and construction in these areas must abide by the flood that problems are discovered in time for maintenance prevention requirements. Different land use policies to be undertaken and thus ensure normal functioning should be implemented comprehensively in these of flood prevention and drainage infrastructure. areas, considering risk distribution, use frequency, topography, the status of land use, and socioeconomic development requirements. Enhance Flood Disaster Emergency Management Green-gray combined land development should be promoted to lower flood risks in The disaster monitoring system comprising the sky, flood prevention areas. The main green-gray rivers, and land should be enhanced by including infrastructure solution in flood protection areas more monitoring categories and improving monitoring include the following. (1) Impermeable surfaces content and data-acquiring levels. Satellites should 59 be used to monitor flood disasters, acquire disaster plans should be made through legislation, which locations information. Helicopters or drones should be should list plans for different phases and scientifically used to acquire real-time information in flood-affected determine insurance rates. Regions and populations for areas. Electronic water-level metering and video flood insurance should be determined based on China’s monitoring facilities should be installed in flood-prone flood risk map. A flood risk zoning plan should be areas. Specialized teams should be developed through facilitated to calculate reasonable rates. methods such as special training and market services. Before establishing a national flood insurance program, The flood disaster forecasting information system existing flood-related insurance should be improved. should be enhanced to increase accuracy and time Coverage and payment of the existing insurance effectiveness. A weather forecasting application options should be improved, and the insurance types system should be established at small and medium should be diversified. Payment efficiency should be spatial scales. In terms of the temporal scale, short- enhanced. The role of insurance in disaster recovery term forecasting should be improved, while mid- and should be fully used. Technical support from flood long-term forecasting should be developed to meet risk research should be enhanced. Different types of the demands of urban and mountainous areas. The disaster information and achievements should be comprehensive construction system at all flood shared. Contact between insurance companies and prevention decision, forecasting, and warning levels research departments, meteorological and hydrological should be enhanced. A long-term information-sharing departments, and flood emergency response mechanism should be established among different departments should be facilitated. The support of levels and departments. commercial insurance companies for flood-related policies should be protected with related regulations Flood prevention organization, including prevention and incentives to create a positive institutional at the basic level, should be enhanced, as should environment. Public insurance awareness should be emergency response capacity. A standing body should raised through publicity and public education programs. be set up at the basic level. For example, a flood emergency response team should be formed at the village level or the community level. Flood prevention Conclusions and Suggestions planning should be improved at and below the county Frequent flooding events have heavily affected level to increase its feasibility and practicality. The China’s socioeconomic development. After the skills of workers in key positions should be enhanced People’s Republic of China was established, China through training and drills. Flood disaster prevention constructed a large amount of flood prevention and control education and training should be enhanced infrastructure in its major rivers, different areas, and to facilitate ‘public prevention, self-protection, and cities and implemented nonstructural disaster reduction community safeguarding’ by raising public awareness measures, resulting in significant achievements. on water-related risks, including wide public However, the flood prevention and control capacity participation to promote societal disaster reduction. in some regions is still insufficient, as manifested in various aspects, such as major infrastructure Establish a National Flood Insurance Program construction, medium and small river management, urban flood prevention and drainage, land use The Chinese government has actively explored the development and utilization, flood risk management, possibility of establishing a national flood insurance flood emergency response, and societal flood disaster program for years. The relatively complete flood reduction. prevention and control structure has enhanced the insurability of flood risks. Based on China’s existing With global climate change and rapid urbanization circumstances, flood insurance work should be and social ecological development in China, future advanced from two aspects: establishing a national flood prevention and control in China is going to be flood insurance program and improving existing more challenging. A few suggestions are offered commercial insurance. on managing China’s flood risk and establishing an insurance mechanism after taking into account China’s Backed by national financial power, a mandatory flood risk causes, changing patterns, and existing national insurance program enforced by the problems: government is an important measure and option for flood risk management. National flood insurance • A flood management system that suits China’s regulations should be formulated to clarify compulsory characteristics should be incorporated into the insurance regulations. A reasonable flood insurance existing legal system. Institutional reform is necessary mechanism that suits China’s societal and flood to clarify roles and responsibilities of different characteristics should be established. Flood insurance departments and to enhance interdepartmental 60 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT coordination. Capacity building should be enhanced. • A national flood insurance program should be Stable financial assurance should be formed, and established, and existing relevant insurance public awareness should be raised. should be improved. This involves formulating national flood insurance regulations to clarify • Land use management should be enhanced. which are compulsory, establishing a reasonable Land development in flood-prone areas should flood insurance mechanism that suits China’s be limited to ensure effective flood space. Flood societal and flood characteristics should be detention areas should be reasonably developed established. Flood insurance plans should, and used to ensure flood detention capacity. scientifically determine insurance rates, with Green-gray combined land development should be enhanced technical support from flood risk implemented to reduce flood disaster risks. research. Improvement of existing insurance • Continued improvement of the flood control and options should focus on coverage, payment drainage infrastructure system should target efficiency, and protection for commercial weaknesses in flood prevention structures and insurance companies. Publicity and public accelerate cities’ compliance rates with flood education programs can raise public awareness prevention requirements, particularly related to about existing and developing flood insurance dikes and drainage pipelines. Flood prevention options. system maintenance should be enhanced. • Flood disaster emergency management, should be Acknowledgments enhanced, including the disaster monitoring system, In the implementation of this project, experts from with more monitoring categories and improved the World Bank and Development Research Center of monitoring content and data-acquiring levels; the the State Council of China provided many comments flood disaster forecasting information system, with and suggestions. They also undertook a large amount increased accuracy and time effectiveness; flood of organization and coordination work to ensure the prevention organization, including prevention at the successful completion of this study. We express our basic level; and emergency response capacity. gratitude. C HAPT E R 1 0 China’s Water Ecological Compensation and Governance Background Water Resources Management System (SWRMS) and to restore the water ecological system through various China has the highest degree of water resource stress measures, such as the construction of a water-based among the world’s major economies. With a large ecological civilization a water ecological compensation population but less water than many countries, the mechanism, integrated river basin management, water water resources are unevenly distributed in time and pollution prevention, and groundwater exploitation space and do not match the distributions of cultivated control. In 2013, the Chinese government initiated the land, energy, and mineral reserves. With the rapid construction of a water-based ecological civilization, development of economy and society, as well as the with 105 cities and counties identified as pilot long-term, large-scale, and high-intensity development programs that have local government support; good and utilization of water resources, the new and old basic conditions; representativeness; and typicality, problems of water ecological and environmental including Jinan in Shandong province, Suzhou in Jiangsu security in China are intertwined. Against the backdrop province, and Xuchang in Henan province. The pilot of increasing effects from global climate change and work in constructing a water-based ecological civilization the acceleration of industrialization and urbanization, was carried out to explore experiences and models the problem of water pollution is becoming increasingly at different development levels, with different water prominent, causing various ecological problems, such resource conditions, and in areas with different water as drying up of rivers, lake and wetland shrinkage, ecological statuses. The main construction focuses groundwater overexploitation, sea (salty) water include implementing the SWRMS, optimizing water intrusion, water function declines, and serious soil resource allocation, strengthening water conservation erosion. management, providing stringent water resource To ensure the security of water ecology, the protection, promoting water ecosystem protection and Chinese government has actively explored various restoration, strengthening ecological protection in water countermeasures, striving to control economic and conservancy project construction, improving the ability social water use through implementing the Strictest for guarantee and support, and carrying out extensive This chapter is based on a summary of the Thematic Report prepared by Jianhua Wang, Yong Zhao, Peng Hu, and Chunling Zhang from the Institute of Water Resources and Hydropower Research under the Ministry of Water Resources. 62 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT publicity and education. The Water Pollution Prevention of river in China was evaluated. Among them, Action Plan issued in 2015 stated that “all efforts should 8.1 percent of the total river length was classified as be made to ensure the safety of water ecological class I, 44.3 percent was class II, 21.8 percent was class environment.” In 2016, the Report on the Work of III, 9.9 percent was class IV, 4.2 percent was class V, the Government also required efforts to “advance the and 11.7 percent was inferior class V. The water quality protection and development in parallel, and continuously of 116 major lakes in the whole year was evaluated. promote the construction of ecological civilization.” Among them, there were 29 lakes classified as class I–III, 60 lakes classified as class IV–V, and 27 lakes In terms of policy mechanisms, the establishment of an classified as inferior class V, accounting for 25.0, 51.7, ecological compensation mechanism has become a key and 23.3 percent of the total number, respectively. policy option. In 2007, the report of the 17th National Congress of the Communist Party of China (CPC) The second problem is the degradation of water ecology. required “the implementation of a fiscal and taxation With the overexploitation of water resources, aggravation system conducive to scientific development, and the of water pollution, and poor management of water establishment and improvement of the system of paid conservancy facilities, water ecological problems have use of resources and the mechanism of ecological become increasingly prominent, manifested by situations environment compensation.” In 2012, the report of the like drying up of rivers, lake shrinkage, wetland reduction, 18th National Congress of the CPC called for “deepening land subsidence, seawater intrusion, and increasing the reform of resource-based products’ prices and taxes, threats to aquatic species. The situation of “partial establishing the paid use of resources and an ecological improvement, overall degradation” of the freshwater compensation system which reflects market supply and ecosystem function has not changed. The exploitation demand, resource scarcity, ecological values and inter- and utilization rate of water resources in the Yellow River, generational compensation.” In 2013, The Third Plenary Huai River, Hai River, and Liao River in northern China has Session of the 18th CPC Central Committee pointed out reached 40–72 percent, and the water entering the sea that “the ecological compensation mechanism for key has decreased from 152.16 billion cubic meters in the ecological functional zones should be improved, as well 1950s to 85.32 billion cubic meters in the early twenty- as the establishment of an inter-regional ecological first century. According to a survey of 514 rivers in the compensation system, based on the principle of ‘who northern region, 49 rivers have experienced drying up, benefits should compensate.’” and the total dried-up length reached 7,428 kilometers, accounting for 35 percent of the total river length. Research Objectives Compared with the 1950s, the total area of lakes larger than 1 square kilometer has decreased by 14,850 square The research objectives of this study are to scientifically kilometers, accounting for 15 percent of the lake area understand the concept, connotation, and significance in the 1950s. In addition, 231 lakes that are larger than of water ecological security and water ecological 10 square kilometers had various degrees of shrinkage, compensation; to analyze the water ecological security including 89 dry lakes, and the dry lake area reached situation in China; to evaluate the progress and 4,289 square kilometers. effectiveness of constructing a water-based ecological civilization in pilot cities; to analyze and understand The third problem is groundwater overexploitation. the relationship between ecological compensation and Because of the shortage or pollution of surface water security; to summarize the history and status of water resources, some areas in China have to rely on China’s water ecological compensation; and to offer overexploited groundwater to maintain economic and countermeasures and suggestions for strengthening social development. In the past 30 years in particular, water ecological security governance in China. the phenomenon of groundwater overexploitation has become serious, causing a series of ecological, environmental, and geological problems, such as land Analysis and Summary subsidence, ground collapse, ground fissures, and sea Problems (salty) water intrusion. According to the Guidelines for the Evaluation of Groundwater Overexploitation Zones The first problem is water pollution. Water pollution (SL286-2003), China has classified 413 groundwater in China is serious. Along with increasing point-source overexploitation areas. Among them, there are 295 pollution, nonpoint source pollution is becoming shallow groundwater overexploitation areas and 118 increasingly prominent. Some water bodies have lost deep confined water overexploitation areas. By analyzing their ability to function. Water pollution problems the exploited amount and exploitable amount of shallow are increasingly complicated and acute, showing a groundwater in overexploitation areas in the base year compounded, watershed, and long-term nature, and and the exploited amount of deep confined water in the have developed into the most serious water issue in base year, it was found that the overexploitation amount China. In 2015, the water quality of 235,000 kilometers of groundwater in plain areas in China is 17.1 billion cubic 63 meters, making up 16 percent of the total groundwater and rural security, and ecological protection. Water security exploitation amount in the base year. has been significantly improved. Among the first batch The fourth problem is severe soil erosion. China is one of 46 pilot cities, the safety guarantee rate of centralized of the countries with the most serious soil erosion drinking water sources has increased by 23 percent. More than 80 percent of the flood dikes in 28 pilot cities meet problem in the world. Soil erosion is happening in the relevant planning requirements, which is 42 percent many areas. The total area of soil erosion in China higher than it was before the pilot programs. is 2.949 million square kilometers, accounting for 30.7 percent of the total land area, which includes Third, the water ecological environment has been 1.293 million square kilometers of hydraulic erosion improved significantly. Through the measures of water and 1.656 million square kilometers of wind erosion. ecological protection and restoration, ecological water The annual average amount of water and soil erosion recharge, source control, and pollution interception, is 4.52 billion tons, accounting for about 20 percent of the pilot cities have strictly protected water resources, the total global soil erosion. The annual average soil prevented water pollution, ensured the ecological water erosion in the main river basins is 3,400 tons per square use for rivers and lakes, and improved the carrying kilometer. The water and soil types are complex. Water capacity of water resources and the water environment. erosion, wind erosion, freeze-thaw erosion, and gravity Among the 46 pilot cities in the first batch, the average erosion such as landslide and debris flow are interlaced. length of rivers whose water quality was classified as class I to III was 77.8 percent of the total river length in 22 cities, which is more than the national level Achievements (74.2 percent). The water space ratio in 60 percent of the The key projects for the construction of a water-based pilot cities has increased in varying degrees compared ecological civilization vary for different regions. Focusing with the ratio before the pilot programs. The treatment on the six regions of northeast China, Huang-Huai-Hai, compliance rate of domestic sewage in 36 cities was the middle and lower reaches of the Yangtze River, the higher than 90 percent. The discharge quality compliance south China coast, southwest China, and northwest China, rate of industrial waste water in 17 cities was 100 percent, this study investigates and analyzes the characteristics and the discharge compliance rate of industrial waste of representative urban projects for the construction of a water in 27 cities was higher than 90 percent. water-based ecological civlization from each region. The Fourth, the water resource supervision capacity has first batch of pilot areas includes 46 cities, which are also been improved. The pilot cities continue to strengthen the focus of this study. The survey found that all pilot cities supervision and management and to comprehensively have made great efforts to promote the construction of improve the capacity and level of water resource key projects during the pilot period and achieved initial supervision and management. Among the first batch results in the construction of water-based ecological of 46 pilot cities, the average monitoring rate of civilization cities. urban sewage outlets into rivers is 90 percent, which First, the SWRMS has been implemented. The pilot is 25 percent higher than before the pilot programs. cities have identified three red lines as the binding In addition, 27 cities, increased from 11, have achieved indicators for pilot construction, continuously improved full-coverage monitoring of water quality in national or the functional orientation and construction pattern of provincial water functional zones within the pilot area; urban water ecological space, and gradually attained 32 cities, increased from 11, regularly carry out water “water-sensitive urban and industrial development.” The quality monitoring in more than 90 percent of national constraining power of water is well reflected. In the first or provincial water function zones; and 26 cities, batch of 46 pilot cities, the total water use in 25 cities increased from 19, have achieved water quality has dropped significantly, with an average decrease of monitoring for more than 80 percent of the region. 7.4 percent, which is higher than the national figure. In 36 cities, more than 80 percent of nonagricultural The water use per 10,000 yuan of industrial added value water users acquired a water intake license. is 37.2 cubic meters, lower than the national average Fifth, the water-saving priority policy has been of 58.3 cubic meters. The average effective utilization implemented in depth. Pilot cities have comprehensively coefficient of farmland irrigation water is 0.577, which is promoted actions such as industrial water saving with higher than the national level of 0.536. The overall water increasing efficiency, agricultural water saving with quality compliance rate of water function zones in the increasing production, and urban water saving and first batch of 46 pilot cities is 81 percent, which is higher loss reduction, and they are constantly advancing the than the national rate of 70.8 percent. development and utilization of unconventional water Second, water security has been improved significantly. sources. Among the first batch of 46 pilot cities, 19 cities The pilot cities have given priority to meeting people’s have formulated water-saving and discharge reduction livelihood needs and have adopted measures of supply schemes for high-water-consuming enterprises, and the and demand management, damage alleviation, urban implementation rate in 17 cities has exceeded 80 percent. 64 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT In addition, 27 cities have carried out unconventional compensation fees. In 2011, the Ministry of Agriculture water utilization, and the amount of newly available and the Ministry of Finance launched the grassland water resources has exceeded 850 million cubic meters. ecological protection award and subsidy. The Ministry of Natural Resources has implemented a special fund Sixth, public awareness of ecological civilization has for the mine geological environment to support local been significantly improved. The pilot cities continue to governments in carrying out geological environmental strengthen publicity and training for the construction of management for mines that have been abandoned or lost a water-based ecological civilization. In the first batch of by mining rights holders. In accordance with the provisions 46 pilot cities, 796 publicity and training activities were of the Forest Law, the Forestry Administration has carried out, and more than 40,000 publications and books promulgated measures for the demarcation of state-level were published. public welfare forests and measures for the management Seventh, the long-term mechanism for construction of the central forest ecological benefit compensation of a water-based ecological civilization has been fund. In addition to the preceding policies and market preliminarily established. The pilot cities have made measures, national laws like the Environmental Protection many explorations into investment and financing Law, Water Pollution Prevention Law, Water Law, mechanisms, water management systems, and and Clean Production Law, as well as some provincial multisectoral cooperation mechanisms under and ministerial regulations, emphasize the paid use of government leadership. Among the first batch of resources and compensation for protection work. 46 pilot programs, 31 cities have integrated water resource management into the party and government Water Ecological Compensation performance evaluation system. In addition, 33 cities have attained initial integrated management of urban Goal and rural water affairs and have gradually established Based on a comprehensive review of the water a water resource management system with clear ecological compensation cases in China, ecological authority and division of labor. compensation practices mainly include protection Eighth, the role of demonstration is gradually emerging. compensation and pollution compensation. The premise The brand effect of a water-based ecological civilization is that the beneficiaries of water ecological protection has gradually emerged. Through the pilot programs, have a responsibility to pay compensation to the 65 cities have become pioneering demonstration zones water ecological protector, while the water ecological for the construction of an ecological civilization and destroyer should pay the costs of reducing the water 13 cities have become national pilot sponge cities. Driven environmental capacity to those who bear the burden by the national pilot demonstration of the construction of water ecosystem damage. Based on this premise, of a water-based ecological civilization, 16 provinces work has been carried out in formulating water have successively carried out the work in constructing an ecological compensation standards, water ecological ecological civilization at the provincial level. compensation methods, and funding channels. Policy Mechanisms Exploration Since 2005, the State Council of China has listed the According to incomplete statistics, 16 river basins (or construction of ecological compensation mechanisms regions) in China have explored and carried out water as annual working points every year. To accelerate the ecological compensation mechanisms. There are construction of an ecological civilization the General 3 cases of state-involved compensation, 10 cases of Office of the State Council issued Opinions on Improving provincial-level compensation, and 12 cases of local- the Compensation Mechanism for Ecological Protection level compensation. The compensation was delivered in May 2016. Relevant national departments for in three ways: state transfers of water ecological development and reform, environmental protection, water compensation to water source protection areas, conservancy, agriculture, land, and forestry all regard the establishment of compensation funds, and direct ecological compensation system as a basic mechanism payment by the beneficiary of water protection. for ecological protection. The National Development and Reform Commission drafted the Ecological Compensation Subjects and Objects Rule and offered the general idea and policy measures for establishing an ecological compensation mechanism. The The premise of establishing a water ecological Ministry of Environmental Protection and the Ministry of compensation mechanism is to determine the subjects Finance jointly initiated the transfer payment of national and objects of compensation. In China, the main key ecological functional areas. The Ministry of Water subjects of water ecological compensation are the Resources has formulated a management method for beneficiaries of basin ecological improvement and the collection and use of water and soil conservation the destroyers of basin ecology. The water ecological 65 compensation objects are a region or an individual compensation problems caused by point-source who carries out water environment protection to pollution, and the externalities brought by nonpoint- ensure the sustainable use of water resources and source pollution are overlooked in existing ecological the downstream regions that are seriously affected by compensation research. Although interprovincial river overdischarge of pollutants upstream. Therefore, the and lake ecological compensation exploration has been objects of water ecological compensation include not carried out, an ecological compensation mechanism at only the ecological protectors of the basin but also the the whole-basin level has not yet been investigated. victims of ecological pollution. Different stakeholders have different understandings of ecological compensation, and there is a lack of Basic Forms consultation mechanisms. The proportion of government compensation is too large, and market compensation is Financial compensation is the main form of water still immature. Finally, the laws and systems related to ecological compensation and is suitable for various scales ecological compensation do not match. of water ecological compensation mechanisms. Policy compensation is possible in the form of power and The span of river basins in China is large, involving opportunities given by the superior government to the numerous administrative regions and management lower government. Within the scope of authorization, departments. Establishing and improving the water the compensated party formulates a series of innovative ecological compensation mechanism is a complex policies and enjoys preferential treatment in project subject that requires long-term exploration and investment, industrial development, and taxation. The research. It is necessary to improve monitoring formation of the water ecological compensation market of water quantity, water quality, and sediment mechanism requires three preconditions. First, the concentration in important sections and to conduct contradiction between supply and demand of ecological joint monitoring of cross-boundary section indicators to services is acute. Second, the public recognizes the form an authoritative, open, and modern monitoring function and value of ecological services. Third, the cost- and information release system. It is also necessary benefit analysis results are positive. to gradually explore types of issues in practice, to summarize experiences through pilot projects, and to continuously improve. The water ecological Compensation Standard Calculation compensation mechanisms that can be applied The calculation of ecological compensation standards is to various issues should be gradually established the key technical difficulty in establishing an ecological and improved. Various compensation measures compensation mechanism. The measurement of need to be explored, including the establishment most ecological compensation standards is carried and improvement of a charging system that is out based on two aspects: inputs and benefits. Inputs conducive to ecological compensation and a transfer include water resources and ecological protection, payment system that is conducive to water resources as well as losses caused by restricted development and ecological protection. Diversified ecological because of water source protection. Estimated external compensation led by the government, and involving benefits are generated by the protection investment nongovernmental organizations, environmental in the economic, social, and ecological aspects. The protection associations, nongovernmental foundations, compensation standard is then estimated based on and other social forces, should be explored. Various these inputs and benefits. compensation methods to strengthen projects and economic cooperation should be explored as well. Finally, the management mechanisms, laws, and Conclusions and Suggestions regulations should be improved. A management China has carried out extensive research on and system, operational mechanism, consultation practical exploration of water ecological compensation. mechanism, and public participation mechanism with However, many immature aspects remain in the the participation of various stakeholders in water theoretical methods and practical operations that ecological compensation should be established, with restrict comprehensive and extensive implementation the rights and responsibilities of all parties clarified. of the water ecological compensation mechanisms. The main problems are as follows. A systematic and complete water ecological compensation theory system Acknowledgments is still needed, and the concept and definition of water We are grateful to the Department of Water Resources ecological compensation are not standardized. The Management of the Ministry of Water Resources of quantitative measurement method of the compensation China for providing materials on national pilot programs standard is not scientific enough and often ignores the for construction of a water-based ecological civilization. influence of natural factors on water quantity and quality We are grateful for funding and technical support changes. Most studies only consider the ecological provided by the World Bank. C HAPT E R 1 1 Legislation Process and Improvement Proposals for China’s Water Governance Background in China’s water governance. In September 2016, China issued Guiding Opinions on the Pilot Reform of the Vertical Management System for the Monitoring, Legislation Process of Water Governance Supervision and Law Enforcement of Environmental Since the reform and opening up of China, and to Protection Agencies below the Provincial Level, which deal with continuously changing issues on water aimed to reform the allocation of environmental resources, water ecology, and the water environment, protection supervision responsibilities; to form a China has strengthened its water legislation. Under new supervision system that can adapt to the new its constitution, the country has promulgated the context and tasks; to strengthen environmental Water Law of the People’s Republic of China, Water supervision capabilities; to enhance the neutrality, and Soil Conservation Law, Flood Prevention Law, integrity, authority, and effectiveness of environmental Environmental Protection Law, Water Pollution supervision and law enforcement; and to curb local Prevention Law, and other relevant documents, protectionism. In December 2016, Opinions on departmental policies, and standards, which together the Full Implementation of the River Chief System form the legal framework of China’s water governance. required government and party leaders to be river The framework includes water resource management chiefs to establish local accountability, to coordinate and protection, water pollution prevention, water efforts, and to enhance water governance. This is a ecological protection, water infrastructure construction major institutional innovation in implementing the and management, and flood and drought prevention. green growth concept, promoting construction of The legal requirements for water governance are an ecological civilization, and improving the water basically met. governance system. In terms of water supervision, China has issued a Implementing the Strictest Water Resources series of reform documents related to ecological Management System requires a water resource protection and resource management, which has laid inspection system that is effective at establishing the foundation to reform the supervision mechanisms integrated basin management and transforming This chapter is based on a summary of the Thematic Report prepared by Jiwen Chang, Fangqing Tang, and Ping Wu from the Development Research Center of the State Council. 68 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT water administration’s roles. The Ministry of Water as domestic provinces such as Zhejiang. The legal Resources’ Guidance Opinion on Deepening Water system should be improved, and outdated laws and Conservancy Reform and Opinions of the State Council regulations should be amended. Regulations related on Intensifying Reform Innovations and Accelerating to water resources, water ecology, and the water Agricultural Modernization require China to establish environment should be coordinated. Problem-oriented and improve the national water resource inspection mechanisms and systems should be established. An system. The Ministry of Water Resources is working integrated water resources, ecology, and environmental on establishing a national water resource inspection supervision system should be established according to system. In 2015, the central government environmental documents on establishing the river chief system and protection inspection system was established. basin-level environmental supervision agencies. An inspection system with Chinese characteristics should To tackle challenges such as water resource occupation, be legalized and used to drive local water governance. water pollution, and water ecological damage, the Information transparency and public participation Supreme People’s Court has issued a few judicial should be enhanced. Public interest litigation by interpretations, such as the “Interpretation Concerning organizations should be enhanced to advance the Some Issues on the Application of the Law to the societal governance process. Overall, the water Trial of Environmental Civil Public Interest Cases” governance system and capacity have to be improved. and “Interpretation Concerning Some Issues on the Application of the Law to the Trial of Environmental Liability for Tort Dispute Cases,” making breakthroughs Analysis and Summary in judicial safeguards. Based on the preliminary work in civil and public interest litigation by prosecutorial Legislative Analysis for Water Governance departments, the standing committee of the National People’s Congress (NPC) amended both China’s Legal System for Water Governance the Civil Procedure Law and the Administrative The legal system for China’s water governance includes Procedure Law in 2017 and legalized a pilot water resource management and protection, water mechanism. Environmental civil and administrative pollution prevention, water ecological protection, procedures have advanced through practice, and the water infrastructure construction and management, legislation for environmental tort liability disputes and flood and drought prevention. Governance at both has continuously improved. Judicial interpretations administrative and basin levels should be incorporated regarding environmental and natural resource crimes into the water governance system. The legal status of have improved, and transadministrative-boundary the basin-level organizations should be defined. jurisdictions have been clarified, which has provided guarantees for judicial justice of water governance. Institutions for water governance have been gradually improved and completed. Innovations have also been facilitated. They have laid the foundation for Necessity of Legal Reform comprehensive and systematic water governance. for Water Governance However, according to the requirements of an In modern society, the rule of law is necessary to tackle ecological civilization, the existing legislation is water problems. According to the goals of constructing insufficient and lacks coordination. China lacks solid an ecological civilization, as well as the legal and comprehensive legislation on the water ecological perspective of water governance, there is still a lack red line, joint prevention and governance, public of legal coordination in water governance. The reform participation, water ecological compensation, and measures need to be legalized. Similarly, legislation is water conservation, which has hindered the legislation required for water supervision reform and institutional process of water governance. For example, because innovations. An integrated inspection system for water there are no legal requirements on the hierarchy resources, water ecology, and the water environment of wastewater pollution discharge permits and should be established. Although public interest environmental impact assessments, two permission litigation has been preliminarily established for water application mechanisms are disconnected, which issues, its effects have been minor, which shows lowers efficiency. Because the existing policies the necessity for reform. The legal reform of water are made by different departments, overlapping, governance has to be comprehensive and in depth. contradictory, and disconnected regulations exist. For example, because the Water Pollution Prevention Law and the Water Law did not specify the monitoring Research Objectives subject, standard, or information disclosure procedures, Water governance legislation should be guided by multiple departments are undertaking the monitoring the construction of an ecological civilization and draw work and generating inconsistent data and information. on successful experiences in other countries, as well These two laws have regulated the legal status, 69 subject, and procedure for the Water Pollution Foreign Experiences Prevention Action Plan and Water Resources Protection Plan. These two plans have overlapping content. Many countries and regions choose to establish However, because of different planning subjects and basin-level organizations. Basin-level organizations orientations, the plans are disconnected and their should have clear legal status and certain decision and implementation is unsatisfactory. implementation power. Comprehensive governance, including resources, environment, and ecology, is the International Experiences general trend. More emphasis should be given to interdepartmental coordination. International experiences offer lessons for China. First, legal actions can be enhanced by joint actions. For example, the riparian countries of the Rhine River Legal Issues of Inspection have adopted the concept of joint governance and in Water Governance formed unions through legal agreements based on A regional environmental inspection system has been their common interests. Water governance legislation established for almost a decade. Six environmental in the United Kingdom has established the concept of inspection regions have been established. Regional comprehensive governance that requires intersectoral environmental inspection has effectively helped the coordination. Joint prevention and joint control have enforcement and implementation of environmental been widely acknowledged as a combined scientific regulations and policies. However, because of a lack concept in comprehensive water governance. of legal power and low legal status, effectiveness is Governance concepts and culture play vital roles in limited and overall performance is not satisfactory. In basin management. In governing the Rhine River, July 2015, the “Environmental Protection Inspection common interests and clear governance concepts are Plan (Tentative)” was issued and the central the links between sovereign countries and have driven government environmental protection inspection each country to fulfill its duty. system was officially initiated. The high-level Central Second, legislation and agreements should be Government Environmental Protection Inspection emphasized, and the rule of law should be embedded group has broad authority, works as a fast pace, and in water governance. Agreements are more common has strong accountability and transparency. Through in countries and regions with federal systems; in other pilot programs, the central government environmental areas, legislation is more frequently used. The clearer protection inspection system has achieved effective and higher the legal status of agreements and plans is, results, yet there is room to improve. For example, the better their implementation. Lessons can be learned the inspection system has not been legalized or by using agreements to motivate riparian governments standardized. Supervision from the NPC and the and using legal instruments to improve enforcement. Chinese People’s Political Consultative Conference (CPPCC) is not in place. The authority of the inspection Legislative Analysis of Water Supervision system should be improved. Legislative Construction Judicial Issues of Water Governance China has established a water supervision system led by In-depth theoretical research on public interest the water department and joined by multiple relevant litigation is lacking. Because of strict eligibility departments that combines both governance by basin and lack of funding, capacity, transparency, and governance by administrative region. However, and incentivizing mechanisms, it is difficult various problems exist. The first problem is that legal for environmental organizations to effectively enforcement of regulations against basin-level water participate in public interest litigation. Second, pollution is incomplete. Basin-level organizations lack there is no consensus on what public interests are, legal status or authoritative power and are easily whether they are eligible for compensation, or their affected by local governments. Legal implementation is differences with private interests. It is controversial not satisfactory. Second, the monitoring system does not whether the compensation should be managed by meet actual needs. Duplicated monitoring departments, environmental organizations or governments. In local protectionism, and insufficient monitoring capacity practice, environmental civil and criminal procedures have resulted in inconsistent monitoring data, which are not yet complete. Environmental accountabilities affects the reliability and creditworthiness of monitoring. are not clearly defined. In addition, an integrated Third, interregional and interdepartmental supervision judicial system at the basin level needs to be has not been established, and law enforcement developed. efficiency is low. Fourth, law enforcement is weak, and comprehensive law enforcement has been slow to Judicial supervision of administrative powers is still develop. lacking. In addition, administrative public interest 70 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT litigation is insufficient. First, it is difficult to file a case. and systems. It should stipulate basin inspection, The economic benefits brought by water resources are basin ecological compensation, and basin legal still an important concern of local governments. To responsibilities. In terms of special laws, promulgation ensure economic growth and reduce unemployment, of laws for major river basins, for example, the some governments acquiesce to pollution or even let Yangtze River Protection Law and the Yellow River enterprises pollute. Although China has adopted a case Law, is suggested. If it is difficult to promulgate laws registration system, many water pollution cases are quickly, corresponding regulations can be issued first, still difficult to file. When the complaint is submitted for example, the Yellow River Basin Management to the court, the court often notifies the corresponding Regulations and Yangtze River Basin Management government and environmental protection department. Regulations. In terms of administrative regulations, The government and environmental protection the legislative process of Water Saving Regulations department will try to make the plaintiff withdraw the should be accelerated, led by the Ministry of Water complaint. Resources and coordinated with other departments. The Water Saving Regulations should match the Water Second, a system of environmental administrative public Law and make detailed and standardized regulations interest litigation initiated by social organizations has on water quota management, water planning, and not yet been established. Because of the lack of a direct progressive water price for water overuse. Supervision, right to initiate administrative public interest litigation, management, and funding mechanisms for water it is difficult for social organizations and citizens to sue saving should be established. The responsibilities local governments and relevant departments that have of governments, society, and individuals should be neglected their duties. Even if they do, it is difficult to clarified. Legislation on public-private partnerships urge the courts to file cases in accordance with the (PPPs) in water governance should be initiated to law. This is not in line with the proper meaning of the regulate the objectives of water governance PPPs. public interest litigation system and is not conducive to Regulations on social capital selection criteria and in-depth implementation of the strategy of governing procedure, managing departments and responsibility, the country according to the rule of law. dispute settlement, risk control, limited recourse, compensation termination, and administrative and Conclusions and Suggestions social supervision should be made. In terms of departmental regulations, legislation on Water Governance Legislative Reform the water ecological red line should be advanced. The legislation concept needs to be established Acute conflicts exist in China’s water environment, scientifically. The construction of a water-based water resources, and water ecology, as well as uneven ecological civilization and comprehensive protection development within river basins, uncoordinated of the water ecological system should be established river basin management, and so on. Basin economic as the fundamental concepts for legislation based on development is not coordinated with ecological water’s ecological and social attributes. Integrated protection. Water ecological red line control can basin-level protection and supervision should be effectively manage these issues and promote the implemented, focusing on improving the water balanced development of a social economy, water environment and maintaining water ecological security. resources, and water environmental protection. To The integrity and coordination of water governance be specific, the managing organization of the water should be enhanced across administrative levels, ecological red line should be reasonably arranged. boundaries, and sectors. Considering the relationship An index system for water resources and water between ecological protection and socioeconomic environmental security should be established. A development, green growth–oriented water ecological guarantee mechanism and accountability should be protection should be advanced by improving the established. industrial structure and promoting technological A legal amendment should be advanced to ensure innovations. timely effectiveness. The Water Pollution Prevention Legislation work should also be advanced. In terms Law, the Water Law, and their supporting regulations of comprehensive regulations, based on the trend should be amended. Repetitive content should be of integrated basin management, promulgation of combined, and vagueness should be clarified. Related the River Basin Management Law as the basic law clauses should be matched. For example, water for basin management is suggested. The law should monitoring and information disclosure functions include regulations on basin resource protection, should be clarified. The effectiveness of monitoring utilization, flood prevention and control, ecological data should be clarified. The connection between protection, and pollution control mechanisms the Water Pollution Prevention Action Plan and the 71 Water Resources Protection Plan should be clarified. the “Pilot Plan for Establishing Environmental Alternatively, the water department and environmental Supervision and Administrative Law Enforcement department can jointly make those plans. In terms Agencies by Basins” was adopted. The meeting of drinking water source protection, regulations on emphasized that the establishment of basin-level water resources and water ecological protection environmental supervision and administrative law should be added. Responsibilities of various relevant enforcement agencies should follow the integrity of departments should be clarified. The order for obtaining ecosystems and their natural characteristics. The basin discharge outlet permission and environmental should be regarded as a management unit. Upstream impact assessment should be clarified to improve and downstream resources should be coordinated, administrative efficiency. A total pollution discharge with clarified powers and responsibilities. Regional cap should be used as an important basis for water environmental supervision and administrative law pollution prevention and pollution reductions. Finally, enforcement functions and allocations should be the legislative process on defining the water ecological optimized to achieve unified planning, standards, red line should be advanced. environmental assessments, and monitoring and law enforcement. Therefore, the overall effectiveness of The legislative process should be improved, and environmental protection can be improved. In terms of legislative coordination should be enhanced. It is institutional building, comprehensive administrative law difficult to change the situation of departmental enforcement pilot projects should be actively carried legislation within a short period. Therefore, out for large river basins, such as the Yangtze and standardization and coordination of water governance Yellow River Basins, across provincial administrative should be strengthened from the drafting stage of regions. A river basin management committee legislation. First, the law-drafting department should should be set up to take charge of integrated water jointly coordinate with other departments to ensure the management in the river basin. After the completion of rationality of the draft and avoid conflicts among legal the pilot projects, experiences should be summarized norms from the start. Next, to avoid the departmental to facilitate corresponding legislative processes. tendency in the formulation of the lower-level laws for overlapping functions, administrative regulations should Third, cooperation among regions and departments be formulated jointly across departments. Finally, the in the river basin should be strengthened to form local people’s congresses or governments within the a joint force of supervision. First, an information- river basin are advised to sign joint water legislation sharing platform should be established to ensure that agreements, to cooperate in legislation, to jointly information exchange is achieved among water-related formulate water laws and regulations, and to reduce departments within the basin and the region. Second, the number of laws, especially repeated ones. the cooperation mechanism regarding law enforcement should be established and deepened. River basin Water Monitoring and organizations and local governments can negotiate to formulate rules and regulations for joint law Supervision Reform enforcement, and to unify relevant standards. Through The first is to establish a supervision mechanism information sharing, joint meetings, joint patrols, onsite and system. The legal interconnections of the river special law enforcement, and multilevel inspections chief system, lake chief system, and supervision at higher and lower levels, all departments can form departments should be established. To enhance the joint efforts and improve the efficiency of water legal effectiveness of the river chief system, the river or administration and law enforcement of water pollution lake chief system should be connected to the existing prevention and control. legal supervision framework in the next amendment of Fourth, accountability mechanisms for river basin the Water Law. To improve the legal effectiveness of law enforcement should be established, and social the river or lake chief system within the party system, participation and supervision should be increased. An the central party committee and the State Council internal supervision mechanism should be established. could consider including the river chief system in the Through laws, administrative agreements, and evaluation and supervision systems by jointly making institutional agreements, the supervision mechanism or amending documents related to water pollution of law enforcement cooperation responsibility can be prevention or water environmental protection. formed, the procedural design of law enforcement can Second, the regulatory system and mechanism be strengthened, and the administrative power can should be improved to achieve scientific and effective be supervised and restricted by procedural provisions. management of river basins. At the 32nd meeting The internal horizontal supervision mechanism can of the Leading Group of the Central Committee on be improved by establishing a scientific institutional Comprehensive and Deepening Reform in 2017, system. The internal vertical supervision mechanism 72 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT can be improved by establishing an internal auditing comprehensive inspections and improve the efficiency mechanism. The supervision mechanism on judicial of inspections. and power organs, as well as the social supervision A long-term central ecological inspection system should mechanism, can be improved by establishing also be established. Regulations on environmental an external supervision mechanism. The public protection supervision should be promulgated to accountability mechanism should be strengthened. stipulate the scope, content, and process of supervision. The problem of managing and supervising symptoms Inspections should be reviewed, and achievements and root causes should be dealt with. The construction should be enhanced. The inspection authority can be of a social governance system that enables social enhanced with ministerial leaders joined by officials supervision should be strengthened. Increasing social from the CPCCC Organization Department and the participation should be prioritized, with unobstructed Supervision Department of the Central Commission channels. To remedy the deficiencies of administrative of Discipline Inspection. The NPC and CPCCC should monitoring, supervision, law enforcement, and send officials to participate in the inspections. Local licensing roles, public accountability mechanisms people’s congresses are encouraged to undertake should be introduced and strengthened to make environmental protection power supervision, and local the new regulatory system open, transparent, and CPPCCs are encouraged to carry out public supervision accountable. of environmental protection. The fifth is to improve basin dispute settlement. Among governments at the same level, disputes should be Reform of Water Environmental settled with negotiations. Vertically, disputes can be settled by the same superior agencies. The horizontal Public Interest Litigation mechanism seems cost effective. However, because The conditions, scope, and procedures of public interest water disputes often involve substantial interests, litigation for water governance should be improved, agreements are difficult to reach, which increases the and the legal supervision role of prosecution offices coordination cost. In China, because a superior agency should be enhanced. Because of the particularity has significant power over its subordinate agencies, of public interest litigation, the procedure of public coordination and decision making by the superior interest litigation initiated by prosecutors should agency is a more ideal option. In terms of basin be distinguished from the general procedure of pollution control, dispute settlement can be managed other types of litigation. In addition, because of the by basin organizations. The basin organization should particularity of the status of the prosecution office, listen to opinions from practitioners, experts, and the attention should be paid to the procedural differences public and organize a settlement or make decisions between public interest litigation initiated by based on extensive data. prosecutors and that initiated by social organizations. According to the authorization by the Standing Water Inspection Reform Committee of the NPC, appropriate breakthroughs can be made in the procedural provisions of the Civil A water resource inspection system should be Procedure Law and the Administrative Procedure Law. established. A water inspection organization In addition, to improve efficiency, it is necessary to should be set up in the name of National Water establish two preprocedures for prosecution offices to Resources Inspection. Various effective measures initiate environmental administrative public interest such as notification, announcement, and interviews litigation. For suspected illegal acts by administrative should be fully used. The main responsibility of offices, the prosecution offices should first issue water resource conservation and protection should prosecution suggestions, requesting that the illegal acts be defined. Public participation through multiple be corrected within a time limit. If the administrative channels should be strengthened to achieve office disagrees or does not correct its mistakes, the synergies with media exposure. A long-term second preprocedure will automatically be initiated, mechanism of legalized inspections should be wherein the Communist Party of China (CPC) Central gradually established. Committee of Politics and Law and the Organizational The regional environmental protection inspection Department of the CPC Central Committee will system should be improved. The inspection methods formulate internal party regulations, requiring the should be changed moderately. Law violations prosecution office’s party group to submit the case and should be reported to the Central Environmental related materials for prosecution to the committee of Protection Supervision Office to cooperate with the the local party at the same level for discussion before central supervision work and strengthen its authority. instituting environmental administrative public interest Consequently, reform of the inspection system can be litigation. If coordination by the standing committees of advanced. The river basin committee should carry out local party committees is successful, the administrative 73 offices will correct their mistakes in time and will to ensure that strict legal responsibilities such as not be prosecuted; if coordination is unsuccessful, daily penalty and administrative detention can be they will be prosecuted. In this way, China can implemented; and to reduce the occurrence of local achieve the organic cohesion and coordination of the protectionism, it is necessary to amend the Criminal party’s laws and regulations and national legislation Procedure Law and to construct a system in which in environmental protection, as well as reduce social organizations can initiate criminal public interest political risks. litigation against public officials. It is also necessary to amend the Administrative Procedure Law to construct The eligibility of social organizations to participate in a system and mechanism for social organizations and civil public interest litigation on water pollution and individuals to initiate environmental administrative water ecological damage should be loosened. The public interest litigation. threshold for environmental protection organizations to initiate litigation should be lowered. For example, In accordance with the provisions of the Environmental the requirement on years specializing in public welfare Protection Law, the “Pilot Scheme for the Exit Audit activities related to environmental protection and of Leading Cadres’ Natural Resources Assets,” and the the requirement of registration could be reduced; “Accountability Measures for Ecological Environmental registration should be only required at the national Damage of Party and Government Leading Cadres (Trial level. In terms of the right to know, the Ministry of Implementation),” administrative officials who should Environmental Protection’s “Measures on Environmental be handled but are not, or those who should resign Information Disclosure of Enterprises and Institutions” but do not, should be held accountable. Systems and and “Measures on Public Participation in Environmental mechanisms can be established for social organizations Protection” should be upgraded to Regulations on to initiate administrative public interest litigation. They Environmental Information Disclosure of Enterprises should require local people’s governments to initiate and Institutions and Regulations on Public Participation relevant accountability procedures. The judicial scale in Environmental Protection, respectively, to enhance of water governance should be unified to curb local their coverage and effectiveness. The procedure for protectionism. The Supreme People’s Court should information disclosure should be simplified. The scope give judicial interpretation and uniformly stipulate the of enterprise and government information disclosure judicial organs for transregional water damage cases. should be broadened and increased. Penalties for Regional and river basin circuit courts can also be not disclosing information can reduce the difficulty established, covering public interest litigation in water of investigation and evidence collection by social resources, the water environment, and water ecology. organizations. In terms of funds, financial guarantee The conditions, claims, and management of and incentive measures for social organizations should compensation in public interest litigation on water be set up. It is advisable to encourage social donations, pollution and water ecological damage should be to improve the financial management legislation of clarified. The Supreme People’s Court should establish social organizations, and to standardize the operation of a list of the scope of social and public interests and a social organizations; these changes not only can reduce list or guideline for litigation requests for environmental the financial pressures of social organizations and avoid public interest litigation. In the short term, the the abortion of public interest litigation caused by high executive tribunals of people’s courts at all levels appraisal fees but also can improve the enthusiasm of can manage compensation funds according to the social organizations to participate in and promote the ecological restoration plans or purchase social services. standardization of public interest litigation. In terms of Publicly selected financial institutions can also carry talents, opening up the regulations on part-time jobs out compensation management. In the long term, it is in enterprises and institutions could be considered to advisable to establish a management model that has a allow professionals to take part-time technical jobs in board of trustees to manage the compensation. public welfare organizations free of charge and thus protect the environmental interests of society and the A system of criminal incidental civil public interest public. To cultivate the supervisory ability of social litigation for water pollution and water ecological damage organizations, the government should increase its should be researched and established. In the criminal financial support in purchasing social services. judicial practices of the prosecution offices, environmental criminal incidental environmental civil public interest The system and mechanisms of judicial supervision litigation has important practical significance. It not over the administrative power of water governance only conforms to the functions of the legal supervisors should be improved. To prevent legal requirements of prosecution offices but also has the institutional from being shelved by the local authorities or advantages of saving judicial costs, improving judicial departments; to prevent serious damage to local water efficiency, simplifying litigation procedures, and reducing resources, water ecology, and the water environment; the burden of collective litigation of victims. Regarding 74 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT environmental criminal incidental environmental civil Supreme People’s Prosecutor’s Office could jointly issue litigations, it is necessary to design various mechanisms, judicial interpretations. In addition, the principles and such as conditions, methods, procedures, and rules of methods of allocating joint liabilities among the subjects court acceptance and adjudication, as well as connect the for joint infringement of environmental private rights public prosecution department and the civil department and social and environmental public interests should be within the prosecution system. Lessons can be learned defined. from the existing criminal, incidental, and civil system, especially the civil practice path of public interest criminal and incidental litigation, which can be combined with Acknowledgments the characteristics of public interest litigation. These need We thank Keying Wang and Tianyi Sun for their help in further study, and the Supreme People’s Court and the collecting and translating materials. C HAPT E R 1 2 China’s Administrative System and Reform for Water Governance Background governance. The administrative management system of water governance includes the organizational structure, Water shortages and water pollution are prominent the list of powers, and the guarantee system of water- problems facing the sustainable development of related government departments. With the development China’s social economy. In some regions of China, a of China’s economy, increasing water use, and increasing serious water crisis has directly affected the sustainable pressure on water ecology, there is an urgent need development of the social economy and the healthy for the administrative management system of water life of the people. The World Water Resources Report governance to be updated to improve the efficiency published in 2006 highlighted that the water crisis is of water resource utilization and achieve sustainable mainly caused by poor management. Reforming and development. perfecting the water administration system is guaranteed to improve the efficiency of water resource utilization and attain sustainable development. Through water New Concepts of Water Governance governance, with the main purpose of ensuring water The core of the water governance system reform safety and water equity, the government, society, and includes the following concepts: improve the distribution other parties employ legal, administrative, economic, of administrative responsibility for water governance; cultural, educational, information, and technological clarify the responsibility-power relationships among means to plan, control, coordinate, and guide human departments, river basins, and administrative regions; water-related behavior so as to continuously improve unify water quality and quantity management; gradually the capacity and level of water resource security, water establish a market mechanism; and promote public environment quality, water ecological services, and participation in water governance decision making. urban and rural water supplies. Water governance generally includes water resource governance, water National Water Security Requirements environment governance, water ecological governance, urban and rural water supply governance, water In April 2014, President Xi Jinping proclaimed conservancy project governance, and water relations the concept of “priority on water-saving, spatial This chapter is based on a summary of the Thematic Report prepared by Shiji Gao, Jianpeng Chen, and Xiyin Zhou from the Development Research Center of the State Council. 76 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT equilibrium, systematic governance, and the combined water pollution control in China. In 1974, because efforts of government and the market” at the special of the pollution of Guanting Reservoir in Beijing, the meeting on ensuring national water security. The Third formation of the Leading Group of Environmental Plenary Session of the 18th Central Committee of the Protection under the State Council marked the Communist Party of China proclaimed the concept of formal establishment of China’s water environmental “improving the management system of national natural protection agency. In May 1982, the State Council resources assets and exercising the owner responsibility established the Ministry of Environmental Protection for of all natural resources assets by all people.” The Urban and Rural Construction, with an Environmental report of the 19th National Congress of the Communist Protection Bureau within the ministry. In 1984, Party of China suggested “setting up the state-owned the State Council established the Ministry of Water natural resources assets management and the natural Resources and Electricity as the department responsible ecological supervision agency,” which marks further for water resource administration. The Water Pollution improvement of the property and management Prevention and Control Law was promulgated in the systems of natural resources. The management same year, establishing a water pollution prevention system of natural resources includes organizations, and control management system by region and by division of power, and a guarantee system to manage department. Before the promulgation of the Water Law natural resource assets. Water is an important natural of the People’s Republic of China in 1988, China’s water resource. It is urgent that China accelerate the reform resource management was decentralized, and water of the water management system from the aspects environmental protection had to be built from scratch. of the management concept, organizational structure, responsibility list, assessment, and accountability to Unified and Strengthened Water achieve the goal of improving the natural resource supervision system in the field of water management. Resource and Environmental Management (1988–2002) Research Objectives In 1988, China promulgated the Water Law, which This report systematically analyzes the evolution of the established the water resource management system water management administrative system in China from of “unified management across administrative decentralized management to centralized management levels and departments,” emphasizing that the and the gradual development of combined river basin water administration department under the State management and territorial management. It also Council is responsible for the unified management analyzes the main characteristics of the administrative of water resources throughout the country. During system with horizontal-vertical fragmentation. Focusing the same period, the State Environmental Protection on cross-sectoral and cross-regional cooperation in water Administration became a deputy ministerial management, it discusses the lack of a water-related department directly under the State Council and information-sharing mechanism, the lag in river basin responsible for the comprehensive management of legislation, and the imperfection of the administrative environmental protection. The function of unified accountability system, as well as directions for management of water resources has been continuously improvement of the water-related administrative strengthened in the subsequent institutional reforms management system in China. Then, some suggestions of the State Council, while the function of water are offered. environmental management has been concentrated in the State Environmental Protection Administration. The revised Water Pollution Prevention and Control Law Analysis and Summary promulgated in 1996 stipulates that environmental Evolution and Characteristics of the protection departments will exercise unified supervision over the prevention and control of water pollution. In Water Resource Management System 1998, the final arrangements of the Ministry of Water Decentralized Water Resource and Resources approved by the State Council confirmed that the Ministry of Water Resources is an integral part Environmental Management (1949–87) of the State Council in charge of water administration, Before the late 1970s, China’s water-related urban flood control, and groundwater management. responsibilities were scattered among many The State Environmental Protection Administration departments. The Ministry of Water Resources was only has been upgraded to the ministerial level. During responsible for flood control and water conservancy this period, water resource protection bureaus under construction of interbasin water transfers (Jia Shaofeng various river basin organizations were under the dual 2011). In the same period, there were no relevant leadership of the Ministry of Water Resources and the institutions for water environmental protection and environmental protection department. By the end 77 of the 1990s, because of management differences, bureaus, water resource protection, development, the dual-leadership role of environmental protection utilization, disaster prevention and control, and departments at the level of basin organizations had pollution prevention and control in urban and rural gradually weakened. areas are managed in a unified way (Lu Xinmin 2010). In 1993, Shenzhen City and Luochuan county of Combined Basin and Territorial Shaanxi province set up municipal and county water affairs bureaus successively and became the first to Management (2002–Present) implement integrated water management in China. In mid-2002, the water law made it clear that “the According to statistics from the Ministry of Water state implements a management system combining Resources, at the end of 2016, there were 2,698 river basin management with territorial management water bureaus or corresponding agencies responsible for water resources.” The water resource administration for water management functions at or above the department under the State Council will be county level, accounting for nearly 83.6 percent of all responsible for the management of water resources county-level administrative units. There were also 213 throughout the country. The new water law clarifies water affairs bureaus at the prefectural level. As of and centralizes provisions on the legal status of river October 2017, there are four division-level provincial basin organizations. In 2008, the State Environmental water affairs bureaus, namely, Beijing, Tianjin, Shanghai, Protection Administration was upgraded to the and Hainan, and nine deputy division–level provincial Ministry of Environmental Protection and became an water affairs bureaus. The integrated management of integral part of the State Council. The division of water water affairs should merge the water-related functional governance responsibilities was further clarified. The departments, which will enhance the benefits of all Ministry of Environmental Protection is responsible for kinds of water projects. The integrated management water environmental protection and water pollution of water resources in urban and rural areas is an control. It is also responsible for publishing water important innovation in China. However, in the reform environment information. In contrast, the Ministry of integrating water affairs, there are still some of Water Resources carries out unified management problems, such as transformation from the original of water resources (Portal of the Central People’s Water Resources Bureau to the Water Affairs Bureau, Government of the People’s Republic of China 2009). lack of substantive functional adjustment, and lack of In terms of water pollution control and management, coordination and management capacity of departments. interministerial joint meetings and a leading group on water pollution prevention and control in river basins Vertical Environmental have been established. Since 2001, the dual-leadership Management Reform model of water resource protection has ceased to exist. In September 2016, the General Office of the Central Overall, China’s water management administrative Committee and the General Office of the State Council system is characterized by horizontal multidepartmental jointly issued Guiding Opinions on the Pilot Reform of management and vertical hierarchical responsibility. The the Vertical Management System for the Monitoring, management of water-related issues is still carried out Supervision and Law Enforcement of Environmental by numerous departments in collaboration, showing Protection Agencies below the Provincial Level. This a pattern of fragmentation. The main body of water- marks the formal start of the reform of the vertical related management is complex. The functions of management system of monitoring, supervising, and river basin management are scattered among many enforcing laws by environmental protection agencies administrative departments at the national level, and the below the provincial level. boundaries of responsibilities and powers are blurred, which leads to unclear powers and responsibilities for On February 6, 2017, the “Pilot Plan for Establishing river basin organizations and local governments. Environmental Supervision and Administrative Law Enforcement Agencies by Basins” adopted by the Progress in Water-Related Central Leading Group for Comprehensively Deepening Reform proposed to establish water environmental Management System Reform supervision and administrative law enforcement Integration of Water Management agencies at the river basin level. China’s water governance has long been described by River Chief System the metaphor “nine dragons managing water” and the process of horizontal-vertical fragmentation. Targeting In December 2016, the General Office of the Central these problems, the integration of water affairs was Committee of the Communist Party of China and the initiated in 1990. By establishing local water affairs General Office of the State Council issued the Opinions 78 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT on the Full Implementation of the River Chief System, River Economic Belt, headed by Zhang Gaoli, a which called for the establishment of the river chief member of the Standing Committee of the Political system by the end of 2018. In the river chief system, Bureau of the Central Committee and vice premier the main party and government leaders at all levels of the State Council. In September 2016, the (provinces, cities, counties, and townships) act as river “Development Planning of the Yangtze River Economic chiefs responsible for the prevention and control of Belt Outline” was issued to promote the construction pollution in rivers and lakes within their jurisdiction and of the Golden Waterway of the Yangtze River and for ensuring the improvement of water environment to promote the establishment of a consultative and quality. The Ministry of Water Resources and the cooperative mechanism among local governments Ministry of Environmental Protection jointly issued along the Yangtze River. In July 2017, the Ministry the implementation plan of the previously mentioned of Environmental Protection, the Development and opinion, and the Ministry of Water Resources issued Reform Commission, and the Ministry of Water the “Supervision and Inspection System for Fully Resources jointly issued the Eco-environmental Implementing the River Chief System.” The river chief Protection Plan for the Yangtze River Economic system clarifies the requirement that local party and Belt. From April 24 to 26, 2018, President Xi Jinping government leaders take overall responsibility for water emphasized the importance of ecological protection environment quality. Based on the standards of water and green development during his visit to the middle quality in different jurisdictions, the distribution of reaches of the Yangtze River Economic Belt. responsibilities and assessment of water environmental protection and water pollution control are carried out. Problems As of December 2017, provincial governments have issued opinions or plans for implementing the river Inter-departmental Issues chief system, which has proposed establishing a five- The development and utilization of water resources for level river chief system at the provincial, municipal, different purposes, such as production and domestic county, township, and even village levels. All working water use, transportation and shipping, agricultural plans of provinces, cities, and counties throughout irrigation, and aquaculture, as well as water pollution the country have been issued and implemented, prevention and control and water environmental and 98 percent of the township-level plans have protection, are disconnected. Water resource, water been issued. Seven major river basin commissions environmental, groundwater, and surface water have formed corresponding implementation plans management belong to different departments, which to different degrees and carried out supervision and greatly reduces the efficiency of water governance inspections. River chiefs at the provincial level have (Wang Yahua 2007). The interdepartmental all been assigned to the governors of 31 provinces collaboration mechanism is insufficient. With the (autonomous regions and municipalities directly below increase of cross-departmental affairs, the frequency the central government) and the Xinjiang Production of joint interministerial meetings on water-related and Construction Corps, as well as other provincial issues is increasing. However, because of a lack of leaders. The leaders of the provincial party committees administrative power and authority, the effect of or governments are the main people in charge. interministerial coordination is limited. 330 provincial leaders are chiefs of important rivers and lakes, and 99 percent of city-level and 97 percent of the county-level river chiefs are designated. River Basin Organization Issues Six supporting systems for the river chief system in For a long time, water governance has focused on 27 provinces (river chief meetings, information sharing, regional management. A cooperation mechanism information submission, work supervision, acceptance, among local governments has not been established, and assessment and incentives) have been introduced. and there is a lack of operable norms (Zhou Hao On November 20, 2017, the Central Leading Group for et al. 2014). The powers and responsibilities in river Comprehensively Deepening Reform adopted Guiding basin organizations and regional governments are Opinions on Implementing the Lake Chief System to unclear, and the ways to execute those powers and strengthen the water governance of lakes. According responsibilities are uncertain. There is a fight for to the Ministry of Water Resources, the system of river rights between river basin organizations and local chiefs was expected to be fully established throughout governments in the river basin. At the river basin the country before the end of June 2018. level, river basin organizations lack authority over all water issues. Because the existing major river basin Integration of Water Governance Activities organizations are the subordinate agencies of certain In 2014, the central government set up a leading ministries, it is difficult for them to implement cross- group to promote the development of the Yangtze departmental integrated basin management. 79 Information Issues the lack of legislation, organizational structure, management power distribution, accountability Many departments concerned with water issues are mechanism, policy instruments, regulatory capacity, undertaking monitoring, and they have accumulate a room for improvement, feasibility of reform, and large amount of data on water resources, the water possible negative effects, to clarify the path of environment, and water ecology according to their own administrative system reform. mandates. These data belong to different water-related departments, and the interministerial data exchange and sharing mechanism is insufficient. In addition, “Nine Dragons Managing Water” even within the same ministries, there is a lack of Although many studies have shown that institutions basic information sharing. Because of inconsistencies described as “nine dragons managing water” reduce in analysis methods and technical specifications the efficiency of water governance in China, some followed by various departments in the process of studies have shown that decentralization of functions data acquisition and analysis, the data at the same in water management is not the key issue; rather, monitoring point could be inconsistent. The monitoring it is the lack of effective cross-sectoral cooperation results are often quite different or even contradictory, mechanisms. Some studies even conclude that which is counterproductive to the comprehensive, decentralization of power and benign competition objective, and accurate evaluation of China’s water are conducive to achieving better governance results. ecological quality and makes it difficult to support This study argues that although the “nine dragons” relevant decision making in water governance. management system has affected the performance of water governance in China, it is not the fundamental Legal and Accountability Issues reason for inefficiency. Reforms to establish large departments characterized by merging institutions Regional laws and regulations are mainly used to have drawn attention, but these can only change the deal with problems involving a whole river basin, situation to a certain extent, because the problem and legal protection is insufficient. The existing river of interministerial and intraministerial coordination basin legislation cannot support integrated basin still exists. At the same time, such reforms may raise management. When river basin organizations carry the issue of sectoral monopoly. The core problem of out administrative law enforcement, the legal system China’s water governance is that the cross-sectoral and cannot deal with local illegal acts. The ability for and cross-regional cooperation mechanism is not smooth. means of law enforcement are insufficient. In particular, It is necessary to promote information sharing and the ability to mediate interprovincial water disputes is mutual cooperation among departments on the basis weak. In addition, in the process of water governance, of clarified powers and responsibilities from legal the supervision and accountability mechanism for and procedural perspectives, to formulate operational leaders has not been used well (Li Hao 2014). cooperation norms, and to form legal, standardized, Problems include simplification of the main body of and procedural cooperation and accountability accountability, absence of criteria for determining mechanisms. responsibility, and imperfection of the accountability procedure. Basin Organization Reform The reform of river basin organizations is a hot Public Participation Issues topic tied to the water governance system in China. For a long time, the decision-making mechanism Some experts believe that the main reason for involving government, enterprises, and public the inefficiency of water governance is that the participation in consultations has not been established administrative level of river basin organizations is too in water governance in China. The existing laws low and should be elevated. Some experts also believe and regulations only stipulate public participation in that the composition of river basin organizations principle, and public access to relevant information is is too homogenous. The diversity of the members limited. The lack of rules, public initiatives, feasibility, of basin organizations should be increased, and and enthusiasm means public participation has not committee functions should be introduced. Based on been fully mobilized. international experience and systematic analysis, this report finds it difficult to improve the performance of river basin water governance by strengthening Directions for Improvement the administrative status of river basin management The core goal of administrative system reform for agencies and changing the organizational composition. China’s water governance is to improve efficiency. Basin organizations already have high administrative Various factors should be taken into account, such as status. For example, the Yangtze River and Yellow 80 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT River Water Conservancy Commissions are both deputy The reform of basin management institutions is ministerial bodies. Strengthening or even changing a hot topic. The keys to reforming the river basin their subordinate relationship to the corresponding management system are implementing and ministry will not necessarily improve the performance strengthening the responsibilities of existing river basin of water governance, but it may change the pattern management institutions, in addition to strengthening of river basin governance system too much and lead river basin management through procedural and to ineffective implementation of the organizations’ institutionalized coordination. Basin legislation must original functions. Under the existing administrative be established and improved. The functions and system, it is difficult to increase the membership in the overall management ability of basin agencies must river basin organizations, as is introducing the role of a be strengthened, particularly in terms of formulating committee. common and law-based water management objectives for the whole basin. Collaboration among the basin Relying solely on the reform of water governance agencies under various ministries and commissions also administrative systems not only will fail to improve needs to be promoted. water governance performance but also will introduce cost for the changes. This report finds that the way to reform the existing river basin management system Policy Recommendations is to implement and strengthen the responsibilities of Departmental Improvements existing river basin organizations and to implement and strengthen river basin management through procedural To reform China’s water governance, the powers and and institutionalized coordination. Therefore, it is responsibilities of water-related departments should necessary to establish and improve basin legislation, be clarified, and the establishment of a coordinated to strengthen the functions of basin management and effective regulatory system for water resource agencies in formulating common water management conservation, water ecological protection, and water objectives and undertaking overall management pollution prevention and control should be promoted. according to the laws, and to promote collaboration By improving cross-sectoral cooperation, policy among the basin agencies under various ministries instrument coordination (involving water quantity and commissions. It is also necessary to broaden and and water quality) and collaborative management of strengthen the functions of river basin management water withdrawal rights, water use rights, and sewage agencies in the overall management of both water discharge rights can be promoted. The construction quality and water quantity. It is suggested that of an ecological civilization is an opportunity, via the integrated management of landscape, fields, forests, supervision system and accountability mechanism, lakes, and grasses within the river basins be broadened to constantly enhance the division of labor and to rationally regulate the development and utilization responsibilities among various water-related of water resources. departments, thus establishing an effective and standardized cross-sectoral cooperation mechanism. It is advisable to establish an effective interministerial Conclusions and Suggestions joint meeting mechanism and interdepartmental Main Conclusions communication mechanism for water-related issues. The water resources and water environmental At present, the core problem of water governance collaborative management mechanism, led by water is the lack of a cross-sectoral and cross-regional resource departments and environmental protection cooperation mechanism. It is necessary to share departments, should be enhanced. It is necessary information among superiors, subordinates, regions, to improve the legal norms of joint interministerial and departments according to laws and procedures. meetings, to improve the corresponding procedural It is also important to form operational cooperation rules, to formulate specific implementation rules, and norms and legal, standardized, procedural cooperation to promote the institutionalization, standardization, and accountability mechanisms. Against the backdrop and proceduralization of interministerial coordination of further integration of water governance powers, mechanisms. the establishment of a water governance cooperation mechanism becomes increasingly urgent. Water River Basin Organization Improvements resource supervision and water environmental protection belong to the Ministry of Natural Resources By amending laws, regulations, and basin legislation, and the Ministry of Ecology and Environment, the law enforcement capacity and authority of basin respectively, which can maximize the advantages of management agencies can be strengthened, and the interagency checks, balances, and collaboration and call performance of basin management agencies can be for the support of a good collaboration mechanism. enhanced. The powers and responsibilities of river 81 basin management agencies should be clarified. institutions should be clarified. Through relevant The administrative law enforcement system of water accountability mechanisms such as the river chief management at the river basin level should be system, the Strictest Water Resources Management improved by establishing law enforcement mechanisms System, and the evaluation and assessment of the across provincial boundaries and strengthening the objectives of constructing an ecological civilization, it is administrative law enforcement functions of river basin necessary to strengthen the cross-sectoral coordination organizations. At the basin level, the basin agencies mechanism and establish a top-down, multilevel, and of the Ministry of Water Resources, the basin law cross-sectoral working mechanism on the basis of enforcement agencies of environmental protection clarifying the powers and responsibilities of various departments, and the regional environmental departments. To set up a transbasin environmental supervision bureau should be encouraged to establish a supervision agency, effective cooperation with the standardized coordination mechanism. basin organizations affiliated with the water resource department should be comprehensively considered. Basin-Territorial Integration Improvements The establishment of a working mechanism and sharing of water-related information can be used as To improve basin-territorial integrated and the starting point for promoting cooperation among coordinated water governance, it is advisable to departments at the basin level. Basin organizations establish a water governance mechanism integrating dealing with environmental protection should focus regional implementation with overall river basin on the coordination of cross-administrative areas. planning. Furthermore, power should be divided Their environmental law enforcement authority between river basin organizations and regional and the corresponding territorial environmental law governments, and integrating the two institutions enforcement should be linked. will improve the water governance mechanism. Basin management organizations should emphasize Information Improvements macromanagement and effectively stimulate the enthusiasm of local governments and departments. In establishing an unobstructed water-related River basin organizations should be given the right information-sharing mechanism, it is advisable to to evaluate the main leaders of the local water- strengthen the standards and regulations for a water- related departments, and they should balance overall related database and promulgate relevant standards and regional interests within the river basin. Under to lay the foundation for follow-up national platforms unified planning and the goals set by the river basin for water information. The construction of a unified organizations, local governments should break down and standardized information-sharing platform at their evaluation objectives, take responsibility for the river basin level should be promoted to achieve the water governance within their jurisdiction, and cross-sectoral, cross-jurisdictional, and cross-user water achieve the goal of water governance within their information sharing. Technical exchanges among territorial areas by mobilizing the collaboration of departments of environmental protection, water various water-related departments. It is therefore conservancy, land resources, and related areas should possible to jointly guarantee the attainment of also be promoted in terms of water-related information the river basin management goals. Powers and communication, monitoring methods, and evaluation responsibilities should be constantly clarified through criteria. An institutionalized information-sharing consultations and other means. mechanism should be established. It is advisable to strengthen the publication of water information and Vertical Environmental Management maximize the synergies between water resource protection and environmental protection. Reform and River Chief System Vertical management reform of environmental Acknowledgments protection agencies below the provincial level and the river chief system should be linked effectively. We thank Professor Shaofeng Jia and Senior Engineer Environmental supervision and administrative law Yuxiu Zhong for their comments. We thank Huiqiang enforcement agencies should be set up by river Cheng and Haiqin Wang for providing fieldwork basin, and the workflow among different levels of materials on basin organizations. C HAPT E R 1 3 Technological Innovation and Information Platform Construction for China’s Water Governance Background governance is divided into water resources, the water environment, water ecology, water disasters, water The old problems of uneven spatial and temporal management, and other fields. From the perspective of distributions of water resources and frequent floods water users, it covers agricultural water, industrial water, and droughts in China are intertwined with new municipal water, ecological water, residential water, problems such as water shortage, water environmental and so on. Technological innovations can be separated pollution, and water ecological damage, which have into three levels: technological thinking, technological become constraints on sustainable economic and equipment (hard technology), and technological social development. To better meet the needs of solutions. Technological innovations should meet the socioeconomic transitions, it is urgent to strengthen goals of technological feasibility, economic rationality, the technological innovation and information platform and environmental friendliness and form a model that construction for water security in China, and to enhance can be popularized and replicated. Information platforms the level and capacity of water governance. can be divided into public platforms that can be shared In general, China’s water resource security is weak. and government platforms and enterprise platforms that Water environment quality improves slowly. The water can support decision making. ecology is seriously damaged, and there are many This study has drawn lessons from numerous scientific hidden risks related to water environmental pollution. It research outcomes, policies, regulations, and plans. is difficult for the existing technologies and information It discusses the development and utilization of water platforms to support the demand of water governance. resources, water saving and efficiency, water pollution There are also many problems with water-related data, control, water ecological conservation, water disaster such as missing items, insufficient coverage, insufficient prevention and management, and conducted case time series, and segmentation. Integrating multilevel studies. Based on these lessons, building a standardized, and multisource data urgently requires technical unified, and shared water governance information solutions and institutional arrangements. platform throughout the country is suggested. Because Water is a basic natural resource and a strategic water security under climate change is a hot research economic resource. From a scientific point of view, water topic all over the world, it is also considered in this study. This chapter is based on a summary of the Thematic Report prepared by Hongchun Zhou and Xiaojun Huang Development Research Center of the State Council. 84 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Research Objectives developed, and the construction of water conservancy facilities should be strengthened. The last kilometer Using a problem-oriented approach, the existing of farmland water conservancy should be completed, situation with China’s water management technology and the allocation capacity of water resources should and water information-sharing platform and the be improved. River and lake water system connectivity gap between China and global advanced levels are projects should be carried out according to local analyzed. Key technologies and their supplies that conditions, relying on natural river and lake water are urgently needed for water security management, systems, storage, and diversion projects. The rates as well as international development trends, are of centralized water supply, tap water supply, water summarized. The main objectives, goals, key supply guarantee rate, and water quality compliance technologies, organization of innovation activities, rate in rural areas should be improved. The construction supporting policies, and countermeasures for building of water conservancy in pastoral areas should be information platforms are offered. steadily promoted. The construction of drought-resistant water sources should be improved, and the regional Analysis and Summary capacity of the emergency water supply for drought resistance should be enhanced. Technological Innovation China has implemented the High-Efficiency Development Urban Water Supply Structure and Utilization of Water Resources special project, and Basin-Level Layout requiring key research and development, as well as demonstration of several advanced technologies in Urban water priorities include improving the comprehensive water resource distribution, water saving, guaranteed rate of urban water supply and comprehensive utilization of water resources, water emergency water supply capacity. According to the conservancy engineering construction, unconventional principle of “utilization by quality and distance,” water development, and utilization. Aiming at ensuring sewage reclamation facilities should be constructed. a safe supply of water resources, it is advisable Reclaimed water should be prioritized in industrial to popularize and apply advanced and applicable production, urban greening, road cleaning, vehicle technologies such as artificial precipitation, seawater washing, construction, and ecological landscaping. The desalination, and reclaimed water utilization, as well as construction of emergency and backup water sources technologies in water resource allocation, groundwater should be strengthened. For cities with groundwater storage, and rainwater utilization and management, to overexploitation, new water sources should be promote scientific and technological innovations in water developed or external water sources should be used. products and equipment. In cities with poor water quality, emergency water source areas and reserve water source protection areas should be strictly delineated to ensure water Areas and Priorities source safety. Technological innovation priorities include developing technologies for efficient development and utilization Water Saving and Efficiency of water resources, focusing on the comprehensive allocation strategy of water resources, construction and Improvements operation of water projects, safety and emergency Water saving has always been an important part of management technologies, intelligent dispatching, and China’s water security. Forward-looking water-saving refined management of water resource systems. Technical technologies should be researched and developed. equipment also needs to be created for the development Standard water-saving systems should be improved. and utilization of unconventional water resources such Water use efficiency should be constantly improved as rainwater, seawater, reclaimed water, mine water, to develop the spatial pattern, industrial structure, and brackish water, which would require breakthroughs production mode, and consumption mode for water in several key equipment areas. Integrated applications resource conservation. During the 13th Five-Year Plan should be used in economic zones such as the Beijing- period, water consumption of 10,000 yuan of gross Tianjin-Hebei region and the Yangtze River Economic Belt. domestic product and 10,000 yuan of industrial added value decreased by 23 and 20 percent, respectively, Rural Water Infrastructure compared with that in 2015. The leakage rate of the urban public water supply network is controlled and Technical System within 10 percent, and the metering rate of urban China’s agricultural water consumption is large and and industrial water use has reached more than inefficient. Agricultural water conservancy should be 85 percent. The effective utilization coefficient of 85 farmland irrigation water has been raised to more than 0.55, and the metering rate of agricultural irrigation water in large-scale irrigation areas and key Box 13.1  Xinjiang Tianye Co. Promotes medium-size irrigation areas has reached higher than Agricultural Water-Saving Technology 70 percent. of Mulched Drip Irrigation Agricultural Water-Saving Technology System Mulched drip irrigation technology is a drip irrigation technology that places a covering film over the drip Agricultural water accounts for a high proportion of use irrigation belt or capillary (soft rubber tube) to reduce in China and is the area with the largest water-saving water losses. After a water source is filtered (to prevent potential. To manifest the principle of “first saving the drip holes from clogging with sediment), it enters water, then using water,” it is suggested to start with a controllable water conveyance trunk-branch-capillary drought-resistant crops and water-saving (sprinkler system and drips evenly, regularly, quantitatively, and irrigation and microirrigation) technologies and drop by drop to the root system of crops. When a crop is irrigation projects and then to build several moderate- to be fertilized, the fertilizer and water are fully mixed to scale, advanced-technology, and scientifically managed form a fertilizer-water solution and then drip irrigation. high-efficiency water-saving irrigation demonstration projects. The Tianye Group of Xinjiang Corps uses the application of mulched drip irrigation as a platform to integrate a Xinjiang Tianye Co. has been promoting an series of water-saving agricultural technical measures, agricultural water-saving technology called mulched such as irrigation, fertilization, pesticide application, drip irrigation and popularizing it in China. There cultivation, and management, and to improve the are more than 40 types of drip irrigation crops. The agricultural technology level. technology has also been applied to the greening of deserts and desert slopes and has achieved Compared with traditional irrigation methods, the remarkable results (box 13.1). application of mulched drip irrigation not only reduces labor intensity and improves agricultural labor Industrial Water-Saving Technology System productivity but also makes agricultural industrialization gradually come true. It is necessary to develop advanced and applicable Source: Lin Jiabin and Zhou Hongchun, Water-saving technology of water-saving technologies with different mulched drip irrigation leads a major change in agricultural production characteristics, to formulate water quotas for key mode (Development Research Center of the State Council 2013). industries, to carry out water balance tests, to optimize and transform water-saving technologies, and to promote the application of technologies on high-efficiency water use, clean water and both sewage and wastewater recycling, water system Water-deficient cities at the prefecture level and intelligent management, and so forth. By 2020, above should meet the national standards of water- China’s water consumption of industrial added value saving cities. of 10,000 yuan is expected to be reduced by 20 To achieve these goals, water-saving appliances percent, the water quota and planning management should first be popularized. Old residential areas for enterprises above a certain scale (annual water should be encouraged to renovate independently. consumption of 10,000 cubic meters or more) is All new renovation and expansion projects should use expected to be fully covered, and industrial parks in water-saving appliances. Second, leakage control and water-deficient areas are expected to meet water- renovation in residential areas and public institutions saving standards. Water intake per ton of steel in key should be undertaken. District metering areas should iron and steel enterprises is expected to be reduced to be encouraged for residential zones. Third, rainwater 3.2 cubic meters per ton, and the water reuse rate is utilization projects in buildings or residential areas anticipated to increase to more than 98 percent. should be implemented to promote the construction and transformation of ecological purification or storage Urban Water-Saving Technology Systems facilities. Fourth, the construction of reclaimed water The goal of urban water-saving technology systems is to utilization projects or facilities in public buildings or control the leakage rate of the urban public water supply residential areas should be carried out. Reclaimed network so that it stays under 10 percent. The utilization water facilities should be installed in new public rate of reclaimed water in water-deficient cities should buildings of a certain scale. Reclaimed water should be more than 20 percent. Water-saving appliances be used, preferably for toilet cleaning and dust should cover all new public and residential buildings. suppression. 86 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Water Pollution Control and problem-solving orientation and implement the “one Ecological Protection Systems river, one policy” guidance to solve the problems of direct sewage discharge in built-up urban areas. Long- The existing scientific and technological resources term management should be implemented, innovating for water pollution control and ecological protection the operation and maintenance mode of the projects. technology systems should be integrated. Finally, the status of the urban water environment Fundamental research and forward-looking should be strictly assessed and a list of urban black technological research and development on water and odorous water bodies, as well as the processes of environmental benchmarks, water pollution’s treatment, should be routinely published. effects on human health, water environmental damage assessment, and reclaimed water utilization Pollution Control in Key Industries should be carried out. Advanced technologies and equipment for water pollution control should It is advisable to formulate and implement special be promoted. The market of environmental treatment schemes for 10 key water-related industries, protection industries should be standardized, and such as papermaking, printing and dyeing, to greatly the industrialization of advanced technologies and reduce the intensity of pollutant discharge. Focusing equipment should be promoted. on the transformation to ultralow emissions of coal- fired power plants, coordinated control of sulfur Construction of Pollution Control dioxide, nitrogen oxides, smoke, dust, heavy metals, and Reduction Projects and other pollutants can be implemented in power, steel, building material, petrochemical, and nonferrous To provide systematic solutions to environmental metal industries. Special governance plans should be problems and to develop an environmental protection created and made publicly available, and projects with technology system, water environment monitoring insufficient pollution control should be exposed. and early warning technology, as well as river basin water environmental management technologies, Pollution Prevention and Control should be promoted. A technical system of source control, cleaner production, end-use management, in Key River Basins and ecological restoration should be established. For key river basins, promotion of urban and rural Acceleration is suggested for research and environmental improvement should continue. development of technologies for advanced treatment Focusing on the important water sources along the of wastewater, low-cost and high-standard treatment South-to-North Water Transfer Line, the Three Gorges of domestic wastewater, desalination of seawater and Reservoir Area, and the Yangtze River, the extension industrial high-salt wastewater, treatment of trace of urban sewage and wastewater treatment facilities toxic pollutants in drinking water, remediation of and services to the countryside should be promoted. groundwater pollution, and emergency treatment of Transformation of rural toilets should be facilitated, hazardous chemical accidents and oil spills in water. as well as unified planning, construction, and The construction of water quality monitoring and management of rural sewage treatment. forecasting and early warning technology systems for important water bodies, water sources, and water Pollution Control of Livestock conservation areas should be strengthened, with breakthroughs in key technologies such as health-risk and Poultry Farming control of drinking water quality, prevention and control With the rapid development of livestock and poultry of groundwater pollution, reuse of wastewater, and farming in China, problems such as unreasonable sector safe utilization. layout and direct discharge of livestock and poultry manure have arisen. Livestock and poultry manure Urban Black and Odorous Water Treatment has become one of the sources of eutrophication in lake and reservoir water. According to the process Influenced by various factors such as concentration control concept of adjusting layout, building facilities, of sewage, inadequate interception, insufficient and promoting utilization, cleaner production and stream flows, and unreasonable planning, urban resource utilization of manure in aquaculture farms water bodies are generally heavily polluted and should be implemented to reduce pollution of the can even be black and smelly. To treat urban black water environment. Biological treatment is the main and odorous water bodies, implementation of the treatment method for rural sewage. requirements of prioritizing sewage interception, and governance-based and systematic management is In 2013, the Sound Group signed a franchise suggested. Treatment programs should adhere to a agreement with the Changsha county government to 87 organize small and medium-size sewage treatment projects in villages and towns into a project to provide integrated solutions (box 13.2). Box 13.2  The SMART Changsha Mode of Rural Wastewater Treatment Integrated Control of Surface Water The SMART Changsha Mode is a mnemonic, using S for and Groundwater Pollution small-scale and land occupation, M for modularization Groundwater pollution incidents occur frequently and multifunction, A for automation, R for rapid in China. The coordinated prevention and control of construction period, and T for technological equipment. surface water and groundwater pollution should be In the Changsha project, which uses a public-private systematically considered to change the firefighting- partnership model, the Sound Group joined with the style of pollution control. government to invest, build, operate, and transfer 16 township sewage treatment plants (29,400 tons per day) Since 2013, Zhejiang province has comprehensively and to build and transfer supporting pipeline network promoted sewage control, flood prevention, drainage, projects, as well as the operation and management, of water supply, and water saving (the components of two sewage treatment plants (5,000 tons per day). Thus, so-called five-water co-governance); formulated river the Sound Group has provided one-stop service, including pollution regulation plans for each river; implemented investment, equipment procurement, installation, the river chief system; and accepted supervision by the operation, and maintenance, for 18 township sewage public and the media. treatment plants from design to operation. The intensive and intelligent operation mode of the Information Technology and Sound Group not only guarantees the long-term Water Governance in China operation of rural sewage treatment facilities but There are various problems with China’s water-related also saves on operation and maintenance costs and data, such as missing items, insufficient coverage, facilitates the supervision of the body responsible for insufficient time series, and segmentation. Water- operation and management. related information involves multiple departments, Source: Sound SMART small town comprehensive wastewater such as water resources, natural resources, agriculture, treatment solutions and the Changsha project fieldwork (2014). environmental protection, and meteorology, as well as enterprise, public, economic, and social development data. The lack of general standards for database use and inconsistent data formats and technical routes have resulted in many data islands. Interdepartmental data exchange and sharing are imperfect; even within the Box 13.3  Intelligent Pipeline Network same department, there is a lack of a normal sharing Management System and Its Application mechanism. in Shanghai World Expo Park China’s information platform is unable to meet water During the 2010 Shanghai World Expo, to ensure the governance needs. It is urgent and necessary to break security of the drinking water supply and its water through the key technologies of big data in water quality, Shanghai Pudong Veolia Company integrated security; to build a standard system of open and shared the control center, testing center, and customer call data; to build a nationally unified, standardized, and center. To identify a problem, a geographic information shared water information platform; and then to form a system would locate any customer complaint in the call social governance structure involving the government, center database or any water quality problem found enterprises, water users, and trade associations. by the supervisory control and data acquisition system. The application of information technology in water It not only can analyze the location and cause of the governance has been explored by many enterprises. problem but also can predict the possible consequences The application of an intelligent pipe network downstream to help eliminate downstream faults management system in Shanghai World Expo Park is in each network maintenance operation (washing, one of them (box 13.3). repairing, valve maintenance, and so on). After the success of the “three centers in one” architecture Water Information Improvements in the Expo Park, Veolia applied this experience to some water supply projects in Europe that have achieved To promote information technology for water remarkable results in improving local customer service resources, the following improvements are suggested: and emergency management capabilities. Optimize and improve the layout and functions of Source: Materials provided by Xiaojun Huang, Xiaobo Zhang, and others. 88 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT hydrological stations. Strengthen the construction of perfect functions. The monitoring sites of atmospheric water quality and quantity monitoring systems for soil and surface water environment quality should cover and water conservation monitoring networks, key water about 80 percent of the districts and counties. Full functional areas, and major provincial boundaries. coverage should be achieved in densely populated Enhance the service capabilities of hydrological patrol, districts and counties. The monitoring sites of soil water quality analysis, and hydrological information environment quality should achieve full coverage. processing. Establish advanced, accurate, and timely Several other tasks should be undertaken that relate water resource, water environmental, water ecology, to the development of a hydrological and water and urban hydrological monitoring systems. resource database: Improve the capabilities and level of the hydrological information service. Strengthen Hydrological and Water Resource Database the development and utilization of water information, and improve the level of atmospheric environment The construction of a water resource monitoring and quality prediction and pollution warnings. Develop a management system should be completed. This national water quality monitoring and early warning includes the following developments: Establish water platform. Strengthen monitoring of persistent and metering facilities and an online, real-time monitoring bioconcentration pollutants in drinking water sources system covering industrial water users in cities and and soils that are harmful to human health. Strengthen towns, as well as large and medium-size irrigation monitoring and early warnings of water quality and areas. Promote the integration and sharing of water radioactivity of urban, centralized drinking water information. Establish a national water information sources in key river basins. Establish an integrated infrastructure platform, and improve the social service remote-sensing monitoring system to attain a network level of water information. Strengthen the construction of environmental satellites. Strengthen remote-sensing of water information network security, and build a monitoring of unmanned aerial vehicles and ground safe and controllable water resource network and ecological monitoring, which provide information and information security system. scientific and technological support for environmental To ensure public safety and focus on the theoretical pollution control and quality improvement, as well issues of natural disasters, such as meteorological as improved competitiveness of the environmental disasters, floods, droughts, and marine disasters, key protection industry. scientific and technological research and integrated demonstrations should be carried out on monitoring and early warning of major natural disasters, as well Conclusions and Suggestions as risk prevention and control and comprehensive Main Conclusions emergency response. Acceleration is recommended for the construction and integration of a national flood Technological innovations in water governance can control and drought relief command system; mountain be divided into five areas: water resources, the water flood disaster monitoring and early warning system; environment, water ecology, water disasters, and water large-reservoir dam safety monitoring and supervision management. It can also be divided into two levels: platform; water resource management information hard technological innovation and soft institutional system that covers large, medium, and small water arrangements. Applications of advanced technologies projects; and water resource data center to improve can be found throughout China. comprehensive decision-making and management Technological progress can change the distributional capacity. The construction of an urban meteorological patterns of water resources. For example, artificial and hydrological information monitoring and early intervention can change the spatial and temporal warning system would improve the timeliness and distribution of rainfall, desalination can alleviate water accuracy of rainstorm and flood forecasting. Other tasks shortages in coastal areas and islands, and reclaimed are to improve emergency plans for flood control and water utilization can change the water source structure drainage, strengthen urban waterlogging and flood risk of cities. management, and improve the capability to cope with climate change. Water resource allocation technologies (such as water diversion) should pay attention to the economics An ecological monitoring network system should and sustainability of the projects. Water saving, be constructed, and an intelligent environmental especially agricultural water saving, has greatly protection and technical support system should be improved irrigation efficiency, but the potential is still established. A national environment quality monitoring huge. The research and development of water-saving network covering the elements of atmosphere, water, technologies and their popularization and application and soil should be built with a reasonable layout and are still important tasks. 89 There are many models for water pollution control in water quality, water ecology, water disasters, and China, such as black and odorous water treatment, water management. Emphasis should be placed biological treatment of scattered sources in rural areas on banning “ten small” enterprises, renovating the (specialized and scaled), strengthened technological 10 major polluting industries, controlling industrial integration (such as a water treatment concept plant) agglomeration areas, and preventing urban domestic and applicability, and promotion based on learned sewage to deepen the work of reducing pollution. experiences. The essence of Zhejiang’s five-water Large-scale livestock-forbidden breeding areas should cogovernance model is to form a synergistic effect and be delimited to achieve resource utilization of livestock should be promoted. manure sewage. Additional tasks are to accelerate the comprehensive renovation of the rural environment The existing water information platform, including and strengthen pollution control of shipping ports. government and enterprises, still faces difficulties By capping pollutant discharge, the total amount of in jointly developing and sharing information. The pollutants discharged from industry, urban life, and development of water governance technologies and an rural agriculture can be reduced. information platform needs increased investment and supporting policies. Manage Water According to Thoughts and Principles the Law and Science Scientific and technological innovations should be The water rule of the legal system requires combined with the improvement of people’s livelihood. improvement. This includes strengthening the guiding Improving people’s well-being and promoting their all- and binding roles of standards, policies, and plans in round development can be taken as the starting point water-related activities. Additional benefit would arise of water governance. It is suggested to solve the most from enhanced supervision and management of rivers direct and realistic problems concerning flood control, and lakes, water resources, and the water environment. water supply, water environmental pollution control, Inferior class V water bodies should be eliminated, and water ecological improvement and then enable and the safety of drinking water should be ensured. the public to share the benefits of water reform and Engineering and management measures should be development. taken simultaneously. Engineering measures should focus on water governance and water cleaning through projects, and management measures should focus on Make Overall Plans and Improve Efficiency water governance and water saving through institutions. Consideration should be given to both the present Treatment should be strengthened for ditches and small and the long term. The water infrastructure should river branches that receive large public interest and be improved, taking into account both water saving concern. It would be beneficial to publish the lists of and water control, surface water and groundwater, black and odorous water bodies, responsible people, and freshwater and seawater, and good water and poor time limits for meeting standards and to implement a water, to make overall arrangements for production, water quality assessment and accountability system for domestic, and ecological water use. Efforts should also key river basins. be made to control the total amount of water use, improve water efficiency, and guarantee ecological Suggestions water use to comprehensively promote the conservation of mountains, rivers, forests, and lakes. Basins should Strengthen Scientific and be regarded as units to strengthen overall protection, Technological Support systematic restoration, and comprehensive treatment. A good grasp of key pollutants, industries, and Suggestions to strengthen scientific and technological regions is needed to improve the quality of the water support for water resources are as follows: Improve environment. The discharge amounts and time periods the scientific and technological innovation system. from dams should be scheduled to maintain ecological Strengthen the construction of hydrometeorological water uses of rivers and lakes. infrastructure, optimize the layout of stations and networks, and accelerate the construction and capacity of emergency monitoring systems. Strive to achieve Improve Water Quality breakthroughs in key areas, key links, and core The core quality of the water environment would technologies; obtain several research outcomes of improve with comprehensive control of pollutant significant practical values; and enhance the introduction discharge and the construction of a comprehensive, and application of technologies. Improve the level of multistep, and coordinated pattern of water quantity, hydraulic engineering technology and equipment. 90 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT Enhance Legal and Scientific The examination and approval of new water intake for Water Governance construction projects in areas where the total amount of water withdrawal reaches or exceeds the control Suggestions to comprehensively enhance law- targets should be suspended. New water withdrawal based water governance and scientifically develop in areas where the total amount of water intake is water resources are as follows: Comprehensively close to the control targets should be limited. Strict strengthen the construction of the rule of law for manage and control of groundwater use are key to water governance, accelerate the transformation of achieving balance between exploitation and recharge; water administration functions, strengthen social coordinating domestic, agricultural, industrial, and management of water-related affairs, and effectively ecological water uses; and improving the utilization improve the capacity of water management according efficiency of water resources. A system should be to the law. Promote legislation in key areas. Speed established that restricts the acceptance of pollutants up the promulgation of the regulations on water in water functional zones. The total amount of conservation and groundwater management, and sewage discharged into rivers and lakes should be carry out research on amendment of the Water Law of strictly controlled by verifying the capacity of water the People’s Republic of China and the Flood Control to receive sewage. Where the amount of sewage Law. Establish and improve the system of public discharge exceeds the limit of the total amount of consultation, expert consultation, and postlegislation sewage discharge in the water functional area, the evaluation to improve the quality of water governance examination and approval of new sewage outlets into legislation. Improve the system of technical standards. rivers should be restricted. Strengthen the development of basic, general, and common industrial technical standards. Improve the Innovate the Water Governance standards of environmental protection, energy saving, System and Mechanism water saving, material saving, safety indicators in production processes, and market access. Promote Suggestions to develop an innovative water governance the standard leader mechanism, and coordinate the system and mechanism are as follows: Increase efforts innovations of science, technology, standards, and to reform key areas and key links and promote the industry. Make full use of trade associations, and reform of water pricing, rights, investment, and financial enhance the influence of China’s water treatment mechanisms. Focus on building a complete, scientific, standards. standardized, and effective water management system. Establish precise subsidies and a water-saving incentive In addition, the comprehensive law enforcement of mechanism for agricultural water use. Comprehensively water administration should be strengthened. The promote the reform of water prices for urban water certification and qualification management system supplies. Comprehensively implement the blocking for water supervisors should be improved. The price system for urban residential water uses and the responsibility system for law enforcement should progressive price system for nonresident water uses be implemented. Administrative law enforcement that exceed the quota to widen the water price gap procedures and the benchmark system of law between high-water-consumption industries and other enforcement discretion should be improved. A record industries. Establish a price incentive mechanism to system for the process of law enforcement and encourage the use of unconventional water resources. a review mechanism for the legitimacy of major Establish a water ecological compensation mechanism. penalty decisions should be established. Routine law Broaden the financing channels and alleviate the enforcement inspections and onsite law enforcement pressure of local financing. Actively strive to broaden should be enhanced, and illegal water acts should be the scope of collateral (pledges) and the source of punished according to the law. repayment for water conservancy construction projects, and allow water conservancy, hydropower assets, Implement the Strictest Water and related income rights to be used as the source Resources Management System of repayment and legal collateral. Encourage and support eligible water conservancy enterprises to list Implementation of the Strictest Water Resources and issue corporate bonds, and expand the scale of Management System begins by establishing a system direct financing. of total water use control and efficiency control. It is also important to establish the red line of water Strengthen the education of national water resources, resource development and utilization control and to raise awareness of water crises and water protection establish the index system of total water withdrawal throughout society, develop social consensus, and control. Strict administration of the examination and stimulate the enthusiasm for development and approval of water withdrawal permits is suggested. protection. Enhance the cultivation of talents to 91 construct a perfect professional service system of and Veolia for their help in providing planning, policy grassroots water governance, form a combined force documents, and so forth. of water control and water development, and build a water-saving society. Reference Development Research Center of the State Council. Acknowledgments 2013. “Summary of the Survey and Research We are grateful for the Fujian Science and Technology Report of the Development Research Center Department, Xinjiang Production and Construction of the State Council.” No. 153. Development Corps, the Tianye Group, Originwater, the Sound Group, Research Center of the State Council, Beijing. C HAPT E R 1 4 Introducing Public-Private Partnerships into China’s Water Governance Background initially forming diversified investment and financing, the coexistence of various economic In the 1990s, China started to introduce the public- components, and a pattern of competition. private partnership (PPP) model into its urban water supply sector. In the new century, the marketization 3. Adjustment stage (2009–13). In the adjustment process of urban water services (including urban water stage, questions and disputes arose in the supply, drainage, sewage treatment, and reuse) has marketization of urban water services, and the been gradually accelerated, and various types of social pace slowed. At the same time, the expansion of capital have been involved in the construction and government investment began, and numerous operation of urban water facilities. government investment and financing platforms for various urban construction and infrastructure The introduction of the PPP model into China’s water projects, including water investment and governance has gone through four stages: financing companies, emerged, promoting a leap 1. Initial stage (mid-1990s–2001). To solve the forward in China’s urban infrastructure. Although problem of slow construction of urban water private capital still participates in funding water facilities (mainly water plants), the initial stage governance, there is no standardized operation focused on local independent practices and system. attracting capital (especially a large amount of 4. Taking off again (2014 and on) Beginning foreign investment). in 2014, the central government has been 2. Development stage (2002–08). At the policy comprehensively cleaning up local debt and level, the state established market-oriented local financing platforms. Against a backdrop reform of municipal public utilities and water of standardizing the government’s investment services. Various types of private capital, foreign behavior, this stage emphasizes that what investment, and publicly listed companies flocked belongs to the government should return to the in. The level of water infrastructure and service government and what belongs to the market capacity achieved a great leap in a short period, should return to the market. This chapter is based on a summary of the Thematic Report prepared by Yining Wang and Guizuo Wang from the Development Research Center of the Ministry of Water Resources. 94 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT The central government has issued a series of policy Reservoir, Sichuan Lijiayan Reservoir, Sichuan Daqiao documents to promote the implementation of the PPP Reservoir Irrigation Area Phase II, Guizhou Maling model, and PPPs have received great development. Water Conservancy Project, Gansu Datao Water Supply In terms of water governance, the traditional field Phase II Project, and the Xinjiang Dashixia Water of urban water services and other fields of water Conservancy Project. In addition, Shaanxi, Gansu, conservancy engineering construction and operation, Jiangxi, Zhejiang, and other provinces have explored water environmental management, farmland water the PPP model in water conservancy projects. conservancy, and so on, have issued policies introducing For environmental protection, as of September 2016, PPPs. However, a development trend remains to be seen. the National Development and Reform Commission has By practicing the PPP model, the water industry has publicly introduced three batches of PPP projects to the extensively introduced external funds, advanced public, of which about 17 are water pollution prevention management experience, and technology designed and control PPP projects, involving about 20 billion yuan. to promote the development of the water industry The introduction of PPPs has a long history and a high and improve the level of services. In the future, degree of development in the area of urban water through the practice of the PPP model, it is of great services. By 2011, there were 309 projects involving significance to promote reforms of the construction private capital investment in China’s water market, with and operational mechanisms of public water facilities a total investment of US$8.2 billion, accounting for 58 and improve the efficiency and level of public water and 23 percent of the global water market, respectively. services. However, the goal, the direction, and the path Build, operate, and transfer (BOT) is still the dominant of PPP model reform still need to be explored in depth. route for private capital to enter the water industry. The interconnection of increasing facilities, improving operational efficiency, improving service levels, However, the farmland PPP project model for water ensuring water safety, and so on should be examined conservancy is still in the exploratory stage because of to steadily promote PPP operations. a lag in the property rights system for farmland facilities and low return despite large investments. The Dayu Research Objectives Water-Saving Group has implemented the first pilot project, introducing social capital to invest in farmland This study aims to analyze the inherent mechanism water conservancy construction in Lulianghenhu of introducing the PPP model into water governance, Reservoir in Yunnan province. The project has built a to analyze the implementation environment 10.8 million mu intelligent drip irrigation demonstration and the evolution of PPPs in China, and to offer area of integrated water and fertilizer utilization. countermeasures and suggestions for promoting the reform of the PPP model in water governance in China. Based on this research, the reform of the water security Main Problems of PPPs in governance system can be advanced and the efficiency China’s Water Governance and level of public water services can be improved. The understanding and implementation of introducing PPPs into water governance deviates from the original Analysis and Summary intentions of PPPs to some extent. PPP operation Status of PPPs in China’s is often used to solve a shortage of financial funds. But if the partnership does not pay attention to Water Governance follow-up supervision, performance evaluation, policy This study mainly focuses on PPPs in four areas: major objective balance, and so on, it is difficult for the water conservancy projects, water environmental project to operate for a long time, and the PPP could management, urban water services, and farmland be abandoned eventually. The essence of a PPP is not water conservancy. privatization but to balance the relationship between government and market rationally and to achieve Comprehensively considering factors such as local maximum benefit through cooperation between enthusiasm, project profitability, and the progress of government and social capital. The fundamental preparation work for major water infrastructure, the purpose of the reform is to transform the way the National Development and Reform Commission and government provides public services and to improve Ministry of Water Resources identified 12 PPP pilot the operational efficiency and public service level. projects: Heilongjiang Fengfen Reservoir, Zhejiang Zhoushan Inland Water Diversion Phase III, Anhui Water governance planning is not comprehensively Jiangxiang Reservoir, Fujian Shangbaishi Reservoir, coordinated, which affects the quality of PPP projects. Guangdong Hanjiang Gaopi Water Conservancy Project, For a long time, there has been the so-called nine Hunan Mangshan Reservoir, Chongqing GuanJingkou dragons managing water in China. Because of 95 uncoordinated planning and differences in quality, The specialized operation system of water PPP PPP projects introduced by different departments projects needs to be strengthened. Implementing do not bring overarching effects and even face PPPs requires a sound, professional operation system. great uncertainties in the follow-up construction In the five stages of project identification, project and operations. The root cause of the use of the preparation, project procurement, project execution, metaphor “nine dragons managing water” is not and project transfer, evaluation, demonstration, the decentralization of management functions; it is and negotiation of contract terms are involved. only the symptom. Whether water-related affairs Differences in project nature, the diversity of fund are managed by one department or by multiple sources, the diversification of participants, and departments, the core purpose is to achieve integrated increasingly stringent policy requirements make the planning and an organic connection of all aspects of introduction of PPPs into the domestic water sector water-related affairs, from planning to construction increasingly complex. It is necessary to combine the and operation. To solve the problem of “nine dragons characteristics of different water projects to decide managing water,” the key is to improve the decision- whether to adopt a PPP model and which PPP model making, supervision, and implementation mechanisms to choose. The contract terms should also be studied of water governance, rather than simply merging and and set according to background and conditions of integrating the functions of different departments. each project. But the PPP model is not only limited by insufficient consultation and supporting capacity PPPs lack sufficient supporting policies and but also affected by the mentality of quick success regulations. Because of the situation in China, and instant benefits. In some places, PPP projects contradictions exist between the PPP model and for water governance have been launched in a hurry the existing laws and regulations, project approval, without sufficient evaluation or careful preparation. investments, and financing mechanisms. The core Lack of specialization affects the operational quality problem is that the government acts as both a of PPPs. participant and a supervisor of PPPs. It is bound by both administrative law and civil law. However, Finally, the supervision system for water governance China’s relevant policies tend to define PPP contracts PPP projects has been slow to develop. Water only by public laws. In addition, with the rapid governance is different from other commodity products expansion of the PPP model, related legal issues and services. It requires a huge initial expenditure. have emerged, such as land resource allocation The technology and management system for later and state-owned asset management. The existing operations is also complex. It is difficult to obtain normative documents are not enough to solve such comprehensive information for supervision. In the last contradictions. The legislative process of supporting round of PPP reform for urban water affairs, one of laws and regulations should be advanced. the major criticisms is that more attention was paid to financing, reconstruction, and construction than to The economic sustainability of water PPP projects operation and supervision. If a supervision system is insufficient. In some regions, a PPP is carried out cannot be incorporated into a sound government because of policy requirements or financial difficulties. regulatory system, the introduction of PPPs will not Therefore, places with better financial resources are not achieve the desired purpose and may even cause very active in promoting PPPs. Cities and counties with greater negative effects. Therefore, the PPP operation poor financial resources prefer to keep profitable projects in water governance should pay attention to the rather than to bring in social capital and share the profits. regulatory and supervision system to achieve all-round As a result, the quality of recommended projects is performance appraisal and life cycle supervision of generally unsatisfactory. They do not have sustainability PPP operations. of profits; therefore, enthusiasm for their social capital is not high. Furthermore, many water projects have an Profit Models for PPPs in imperfect charging mechanism, and the basic conditions Water Governance for the operation of social capital are not available. The profitability of these projects should be enhanced The profit model of PPP projects raises wide concerns. through government subsidies, land resource allocation, Most infrastructure and public service projects are not related business portfolios, loan discounts, public welfare fully profitable but instead are not profitable or are expenditure compensation, tax and fee relief, and other quasiprofitable, requiring government payments or means. Otherwise, it is difficult for them to operate consumer payments with government subsidies. Such long term. However, social capital is concerned with model is not sustainable for either governmental or whether the relevant preferential policies are in place, social capital. The problem of return on investment whether they can be sustained, and whether they will needs to be addressed through an innovative be abolished because of a change of government. profit model. 96 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT According to relevant domestic research, PPP projects mechanism for the water price should be constantly mainly have the following profit models: (1) Optimize improved, and the level of the water price should cover the income structure, which includes supplementing the cost of construction and operation and generate the rights to develop resources to make up for lack of reasonable profits. revenue, authorizing supporting services to expand For projects for which water prices are not adjusted or the profit chain, developing by-products to increase are difficult to adjust, the government can make up revenue sources, and naming public services to the difference for basic operating costs and improve improve the reputation of investors. (2) Optimize the profitability by giving appropriate preferential policy cost structure, which includes properly segmenting guarantees, authorizing the provision of supporting the projects and applying the PPP model only to the services, and developing by-products. parts that are closely related to operational cost and efficiency, packaging project operations to generate scale effect and reduce unit production cost, and Stable Charging Mechanism but Huge innovating management and technologies to reduce Investments and Public Welfare operational cost. (3) Stabilize target profits, which includes bundling products with different profits and Examples of projects with a stable charging mechanism losses to improve the sustainability of target profits and but huge investments and public welfare include setting a reasonable base in the early stage to improve important water source projects and water diversion the stability of target profits. projects. These kinds of projects have a huge investment scale and long cost recovery period. Although they It is generally believed that the investment and also have a stable income source, the overall risk is operation modes of social capital in water governance relatively high and the long-term return on investment are mainly determined by the investment scale and is difficult to guarantee. Moreover, such projects play a profitability of the water governance projects, that strategic and fundamental role in the national economy, is, whether they have price-charging mechanism and the government cannot withdraw completely if it and the possibility of expanding their profit model. is to provide public welfare. The project company can Water infrastructure and public service projects with be set up with legal responsibility for the construction a flexible price adjustment mechanism and a certain and operation of the project via joint investment by the degree of marketization can be funded and operated government and social capital. independently by government-authorized social capital. If the investment scale is huge, it is more difficult for The profit for social capital include the following social capital to be invested independently and instead modes: (1) The basic reasonable profit of the project requires government investment. The government company should be guaranteed through normal water and social capital can form project companies jointly. price adjustment. (2) Social capital can contribute to For public welfare projects without a charging the part of the project that is more operational, while mechanism, it is more suitable to adopt the method of the other parts can be funded by the government. governmental purchasing services. Based on the nature (3) The government can issue preferential policies such of operation, it can be divided into the four following as financial subsidies, tax preferences, and the right to modes. supplement resource development. Stable Charging Mechanism Weak Charging Mechanism and Cost Recovery and Investment Overlap Examples of projects with a stable charging mechanism Projects with a weak charging mechanism and that basically meet cost recovery requirements include overlapping investment subjects and beneficiary groups urban tap water, sewage treatment, and so on. The are mainly farmland water conservancy projects. investment needs of these kinds of projects are within For example, for water-saving irrigation projects and the capacity of social capital, and stable operation small-scale farmland water conservancy projects with can be maintained by using water user charges to clear and centralized beneficiary groups, joint-stock generate a certain amount of income, which has a companies can be set up by agricultural enterprises strong attraction for social capital. The government and farmers as project companies. The companies can use BOT; toll, operate, and transfer; build, own, are responsible for the construction and operation of and operate; and other franchising methods to bring projects, and the government provides incentives and social capital into such projects. However, the water subsidies. Agricultural enterprises and farmers are both price is generally not sufficient, which hinders the share owners and beneficiaries of water conservancy introduction of social capital for some water supply and facilities, who consciously promote the sound operation sewage treatment projects. Therefore, the formation of water conservancy facilities. 97 No Charging Mechanisms The public financial support system and public service purchasing system for water governance should be Water projects that can be regarded as pure public established or improved. Suggestions include increasing services, including flood control and water ecological the government’s public financial support for water control, are often projects that lack charging resource development and reforming the methods mechanisms. Such projects mainly generate social of public financing and investment. The responsibility benefits but do not have direct economic benefits of government financing should be clarified, and the and therefore have obvious characteristics as public proportion of direct and indirect payment by consumers services. It is difficult to determine the reasonable should be determined according to the nature and prices for project products and services. It is also characteristics of different water services. From top difficult to determine the charging objects; therefore, to bottom, the channels of public financial funds these types of projects may have free-ride problems. for water-related projects should be reviewed and The collection cost is also high. Because of these integrated. The financial responsibilities and resources characteristics, such projects mainly rely on financial of the central and local governments should be expenditures. balanced. The investment priorities and areas of water- Government purchasing services can provide related projects by governments at all levels should reasonable returns for social capital and therefore be clarified. It is advisable to change the approach attract social capital and attain specialized construction to public financial investment, to shift more financial and operation. There are also some ways to enhance funds from supporting projects to purchasing products the attractiveness of capital returns of such projects, and services, to link financial support with the effect such as packaging the operations of several small of water public services, and to actively develop the projects, forming a scale effect, reducing unit product government’s public purchases of all kinds of water costs, and naming public services to improve the service products and trading markets. reputation of investors. It is crucial to cultivate specialized water business operators. It necessitates defining the respective Conclusions and Suggestions responsibilities of the government and enterprises The overall planning of water governance should and their respective risks. with the goal of gradually be strengthened, and the quality of PPP projects improving the system of government investment should be improved. Comprehensive planning of support for water public facilities and government water governance and special planning on flood purchase of water public services, the corresponding control, waterlogging control, irrigation, shipping, performance evaluation and reward and penalty water supply, hydroelectric power generation, water systems for water enterprises should be established. ecological control, soil and water conservation, and Water enterprises (operators) and governments water conservation should be coordinated to build (regulators and service purchasers) should operate a sound water governance planning system. With independently. When providing high-quality services, such planning, water governance projects can be enterprises should be compensated and rewarded with fully integrated, the scale effect can be attained, full costs and expenses. When the services provided comprehensive benefits can be maximized, and the by enterprises are not up to the expected standard, quality of a water PPP project can be improved. they should be penalized accordingly to promote the continuous improvement of the urban water service Improvements should be made to PPP legislation of level and operation efficiency. water governance and the PPP market system. At the national level, special laws and regulations on Efforts should be made to improve the preferential PPPs for water governance should be formulated as policy system and enhance the profitability of water soon as possible. The focus of legislation is to build PPP projects. It is necessary to strengthen top-level unified market access, market competition, and design, complete the relevant preferential policy market regulation rules and to clarify the authority and system, and improve the profitability of water PPP process of government approval, the core rights and projects in the investment, financing, pricing, market obligations of governments and private enterprises, access, service quality supervision, and other stages the contract framework and risk-sharing principles, an involved in PPP projects. According to the nature of exit mechanism and dispute settlement mechanisms, the project, the scale and mode of financial subsidies financial rules and accounting standards, government should be reasonably determined and appropriate supervision, the public participation system, and so on. subsidies should be given for maintenance and Legislation should also specify the conditions, means, management, considering the factors of construction and procedures for the government to take nonstandard and operation costs. Supporting project resources interventions to prevent major water security risks. should also be developed by authorizing the provision 98 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT of supporting services and developing by-products, and sewage treatment, will bring new growth such as land resources, tourism resources, property areas to the development of the water industry. resources, and forestry and fishery resources, as The development of the water industry should be necessary operational compensation to enhance the based on several large-scale and experienced water attractiveness of the project. Finally, project content groups. Local governments should actively innovate the and structure settings should be rationally optimized. corresponding systems and policies, take the market For example, large projects can be appropriately as the leading factor, adjust the capital structure to divided to attain reasonable allocation of investment promote industrial integration, encourage and guide according to functions and benefits. Only part of the financial institutions to increase financing for water project should adopt the PPP model. Small-project construction, promote the rapid growth of water operations can be packaged to form a scale effects and enterprises, and accelerate the formation of several reduce unit production costs. Products with different water groups with strong capital, clear ownership, a profits and losses can be bundled to balance profit modern corporate structure, and certain international objectives. influences. The professional supervision system should be Finally, risk prevention and control for PPPs in water improved, and the supervision of PPP services for water governance should be strengthened. The government governance should be strengthened. In the process should share risks reasonably between the public sector of PPP project construction, relevant departments and the private sector and bear risks such as changes in should follow up and supervise the planning, bidding, laws and policies. Social capital should bear risks such government procurement, contract formation, and as project construction, cost in operation, construction construction safety. During the implementation period, and service quality. The risks of PPP projects phase, the relevant departments should strengthen for water governance should be assessed reasonably the supervision and management of the enterprise’s beforehand and adjusted as needed to account for industry, establish a performance appraisal system of changes in project progress. It is advisable to establish the enterprise’s management quality, and strengthen and improve the penalty mechanism for dishonesty, the supervision of costs, product and service improve the credit record system, and prevent and quality, operation safety, and emergency response. resolve credit risks. Trust companies and insurance Information disclosure and project transparency should institutions are encouraged to participate in water be strengthened. Social intermediary agencies and governance PPP projects to reduce their investment professional institutions should be used to undertake risks. commission sampling and forensics, onsite inspection, and evaluation. The professionalism, independence, Acknowledgments and credibility of supervision should be enhanced. This study has received support and help from the Integration of the water industry structure and World Bank, State Council Development Research cultivation of large-scale cross-regional water groups Center, Ministry of Water Resources, China Institute of are recommended. With the acceleration of the Water Resources and Hydropower Research, Institute of urbanization process in China, the demand for public Geographic Sciences and Natural Resources of Chinese water products and services is likely to usher in a rapid Academy of Sciences, and others. Many experts have development period. On the one hand, large-scale provided comments that have improved the report. renovation of the water supply and drainage network Because this topic is relatively new, it needs a lot of will strongly stimulate relevant markets. On the practical experience to support further research. In other hand, some potential emerging environmental addition, the timeframe is tight, the task is heavy, protection and resource-saving industries, such and our ability is limited. There are inevitably errors, as water-saving irrigation, rainwater utilization, omissions, and many other imperfections in this report. reclaimed water utilization, seawater desalination, Further comments and criticisms are welcome. C HAPT E R 1 5 Comprehensive Research and Systematic Design of China’s Water Governance System Background • Social factors. Transition to a resource-saving, environmentally friendly, and ecologically China’s economy enters into the “New Normal” status conservative society, as well as water-saving society and seeks new energy for sustainable economic development development. Cultivating the new energy and promoting the shift to the new energy have become • Governance factors. Powerful governments and key factors affecting the achievement of sustainable government reform economic development. • Market factors. Enhancement of market roles and China is committed to establishing a moderately well- uneven development of markets in different sectors off society for all people. Water governance is critical to and regions the building of a well-off society. The country is also in • Institutional factors. Roadmap of institutional reform a new era of state governance system modernization for an ecological civilization and other institutional and capacity building. Promoting the establishment of reforms related to water governance a water governance system is essential to achieving an environmentally friendly society. China is striving to develop and realize Ecological Civilization and a Research Objectives Beautiful China. The main objectives of China’s water governance should include five aspects: The following are impact factors of China’s water governance system design: (1) China’s water governance needs to contribute to state governance system modernization and • Water-related factors. Water resources, water for capacity building. In the long history of China, the environment, water ecosystems, water-related water governance has always been closely linked infrastructure, and water relationships with state governance. In other words, the history • Economic factors. Sustainable economic growth, of China is the history of water governance. Water economic structure adjustment, and investment governance is essential for national governance. capacity for water governance The capacity of water governance is considered This chapter is based on a summary of the Thematic Report prepared by Shuzhong Gu and Liang Zhang from the Development Research Center of the State Council. 100 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT a critical criterion for the selection and nomination Water governance should focus on mitigating of the government officers. China has increasingly flood and drought risks and effects, promoting emphasized the importance of water governance. urban and rural water supply security, and However, more efforts are needed for water restoring the ecosystem and environment. governance capacity building. (5) China’s water governance should contribute to (2) China’s water governance needs to contribute regional and global water governance. The ideas, to achieving an ecological civilization and framework, capacity building, and lessons learned establishing its system. Water governance from China’s water governance can provide is a critical component of developing an experience for regional and global water governance. ecological civilization. The design of China’s water governance system should include the aspects of water rights, water development and Analysis and Summary protection, water planning, total water utilization The design of China’s water governance system control, water saving, ecological compensation, should adhere to five basic principles to reach environmental management, market- balance between equity and efficiency, success oriented ecological protection, evaluation, and and innovation, national integrity and regional responsibility designation. divergence, independence and systematicness, (3) China’s water governance should be embedded and official direction and social participation. The in the capacity building to ensure national and design of China’s water governance system should regional water security. Water security is the consider the justification standards, including the capacity of a country or a region to provide degree of water resource security, the quality of sustainable, available, stable, affordable water water ecology and the environment, the loss of and water-related products and services and to water-related disasters, the effects of water-related maintain a sustainable environment. It includes conflicts, the value of water-related assets, public water resource security, water environmental satisfaction with water services, and the costs of security, water ecology security, water- water governance. related infrastructure security, water supply security, and security of international water Basic Framework relationships. Enhancing water security is the China’s water governance system is designed to major objective of China’s water governance include aspects of water governance areas, governance system design. entities, and governance approaches. The basic (4) China’s water governance should focus on the framework of China’s water governance system is long-term improvement of people’s welfare. shown in figure 15.1. Figure 15.1  Framework for the China Water Governance System China water governance system Governance areas Governance entities Governance approaches Community and family governance Water infrastructure governance Regional and global governance Water environment governance Bi-and multilateral mechanism Water relationship governance Water ecological governance Comprehensive governance Water resource governance Administrative governance Government governance Legislative governance Market governance Market regulations NGO governance Note: NGO = nongovernmental organization. 101 Framework Design for Water erosion, lake and wetland conservation, water biomass, Governance Areas and so on), the preparation and implementation of ecological conservation and restoration planning in Water governance has at least five major areas: water groundwater overdraft areas, ecological compensation for resource governance, water environment governance, major drinking water source areas, critical water bodies water ecological governance, water infrastructure and wetlands, the improvement and implementation of governance, and water relationship governance. soil and water conservation planning, and the exploration of a rational investment mechanism for water ecological Water Resource Governance conservation and restoration. Water resource governance includes the development, utilization, saving, and protection of water resources. It is Water-Related Infrastructure Governance composed of the following aspects: the implementation Water-related infrastructure governance aims to and improvement of the total water utilization control improve the rational construction and efficient system, including the identification of primary water operation of water-related infrastructure. In general, rights; the preparation and implementation of national it includes the following aspects: the improvement and regional planning for water resource development and implementation of the management system and and protection; the establishment and implementation technical standards for water-related infrastructure, of groundwater development and utilization, especially the enhancement of water-related infrastructure in areas of groundwater overutilization; the reform of the management, the exploration of a rational investment water pricing mechanism; adjustment and improvement mechanism, the preparation and implementation of of the water resource fee; the promotion of the shift the infrastructure security management system, and from a water resource fee to water resource taxes; the improvement of the evaluation system for water- the regulation of and permission for surface water and related infrastructure management. groundwater withdrawal; the control and management of water supply quality; the building of water-saving Water-Related Relationship Governance institutions; and the establishment of harmonious relationships among water resource sustainability, With the increasing occurrence of water-related urbanization, and industrialization. conflicts, water-related relationships gradually become the key concern of water governance. The key areas of water-related relationship governance Water Environment Governance are the improvement of the mediation mechanism of Water environment governance emphasizes two related conflicts, adjustment and implementation of key aspects: reduction of pollutant emissions and water resource planning in areas with severe water- environmental restoration. In general, it is composed related conflicts, the establishment of emergency of the following main areas: the improvement of the management planning for water-related conflicts, water environment monitoring system, the planning and the establishment and implementation of the and implementation of the water pollution discharge negotiation mechanism for transboundary rivers. standards, the management of water pollution, the integrated management of water and the environment Framework Design for Water in critical regions or watersheds, comprehensive environmental management in the key water source Governance Entities areas for concentrated drinking water supplies, the The water governance entities include governments, integrated management of black and smelly water market subjects (enterprises and others), social in urban areas, adjustment and improvement of organizations or nongovernmental organizations the pollution discharge fee system, market-oriented (NGOs), and international cooperation. Therefore, reform of sewage disposal enterprises, third-party the water governance system should consist of management of water pollution, and recycling and governmental water governance, water market reuse of polluted water resources. regulation, social and NGO water governance, and global and regional water governance (bilateral and Water Ecological Governance multilateral cooperation mechanism). Water ecological governance emphasizes conservation and restoration of water ecology to maintain and improve Governmental Water Governance water ecological services. In general, it includes the Governmental water governance includes following aspects: monitoring of the water ecological improvement of the governmental (official) evaluation system and services (water storage, soil and water system to encourage local governments to emphasize 102 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT water governance. The new evaluation system should Framework Design for Water include water resource development, utilization, Governance Mechanisms protection and saving, water environmental protection and management, and water ecological conservation Water governance mechanisms include and restoration. This aspect of water governance also administrative, legislative, market-oriented, and includes enhancement of water-related administrative integrated government system approaches, as system reform to clarify the functions and well as the bilateral and multilateral cooperation responsibilities of each sector and department, as well mechanism. Water governance within China as promotion of the changes of government roles, mainly relies on administrative approaches. More from the management of water-only issues to the efforts are needed to promote the application management of wider water-related social issues. of other mechanisms. Therefore, China’s water governance should emphasize the following aspects: (1) reform of the water administrative Water Market Regulation system; (2) definition of the responsibilities for The critical factors affecting water market regulation each administrative area; (3) improvement and are the roles of the market in resource allocation, reform of legislative supervision on administrative including eliminating irrational controls on water actions; (4) improvement of the legislative system markets and improving the water market mechanism. for water governance; (5) enhancement of the The main areas of water market regulation are (1) the water-related responsibility system for water expansion of the scopes and functions of water rights governance; (6) promotion of water market reform; trading, (2) the promotion of market-oriented reform (7) encouragement of market investment in water- of water supply enterprises, (3) the enhancement of related infrastructure and regulations, such as water sewage market development and reform, especially rights trading, water market rules, and water market the promotion of third-party sewage disposal supervision; and (8) improvement of the social management, (4) the introduction of social capital into participation mechanism. water-related infrastructure investment, using public- private partnership (PPP) models, (5) the introduction of market-oriented entities into water ecological Roadmap for Establishing China’s restoration, and (6) the improvement of the market Water Governance System mechanism to promote water saving. The roadmap for the establishment of China’s water governance system includes the following steps: Social and NGO Water Governance (1) Prepare the overall scheme for China’s water The roles of society and NGOs are reflected in governance. This scheme should include the goals several aspects of water governance, including of each stage, the key and basic institutions for (1) public education and training, (2) participation water governance, and the framework for water and supervision, (3) the introduction and promotion governance. of advanced technologies and skills, and (4) the establishment of negotiation mechanisms between (2) Identify and clarify the responsibilities of each governments and the citizens. In the future, more entity. Based on the clarification of the functions efforts are needed to improve the legislative system, and responsibilities of water governance-related promote NGO development, and enhance public entities, the cross-entity coordination mechanism participation to improve and strengthen the effects of will be established. The responsibility lists for each social participation into water governance. entity should be defined. (3) Encourage local governments to launch specific Global and Regional Water Governance practices to improve their water governance, aligning with uniform national schemes. The key points of global and regional water governance are (1) the improvement of bilateral and multilateral (4) Establish a national water governance evaluation cooperation in the protection, conservation, and system, and encourage local governments to restoration of water resources, the water environment, implement stricter evaluation systems aligned and water ecology; (2) the improvement of with the national system. communication and a negotiation mechanism in water- (5) Supervise and evaluate the implementation of related areas; and (3) the establishment of bilateral and water policies. multilateral cooperation mechanisms to address water issues and challenges and improve the water governance (6) Improve water policies based on the evaluation capacity at the country, regional, and global levels. results. 103 Timeline for Establishing the System and ordinances. The regulations on water-related activities include establishment of lowest or highest The establishment of China’s water governance system limitations for such activities. For example, the highest should have a clear timeline that is well aligned cap of water utilization is used to control total water with institutional reforms required for an ecological use. Similarly, the wastewater discharge limitation, the civilization and focuses on the key areas of water water use efficiency requirement, and the entry-level governance. There are three stages of the timeline. standards of water supply sectors are useful to regulate Until 2020, the main tasks that should be completed water-related activities and behaviors. The regulations include preparation of the comprehensive scheme for on water management include implementation water governance system reform and improvement; of the river and lake chief system, supervision of formulation of the primary framework for the water the water monitoring system, evaluation of water governance system; periodic reform of the water governance management, the system of water-related administrative system, especially rational reform of infrastructure management, and security management administrative relationships; and the pilot water-related and maintenance of infrastructure. policies and regulations, especially in water shortage areas. By the end of the first stage, there will be an Market Mechanisms initial improvement in water resources, the ecosystem, and environmental conditions. The market instruments for water governance mainly include water price, taxes, fees, and water rights Until 2025, the main tasks that should be completed exchanges. For example, the instruments comprise include establishment of an integrated water water resource charges and pollution fees, cross- governance system and reform and improvement of regional economic compensation standards for water the water administrative system, with harmonious and ecology, third-party water environmental restoration, effective relationships between related entities. By PPP investment in water sectors, and the market- the end of the second stage, there will be a significant oriented system design of water rights trading, improvement in water resources, the ecosystem, and water pollution discharge trading, and the ecosystem environmental conditions. compensation mechanism. By 2030, a rational and advanced water governance system should be established, and a rational, effective, Information and efficient water administrative system should be set The information instruments apply information up. By the end of the third stage, the comprehensive technology to achieve data-driven water governance water governance capability will be lifted to a and promote data and information sharing. China is worldwide advanced level. still at the stage of limited water-related data and information sharing. These issues have increased Policy Instruments public concern and will limit the improvement of water The main policy instruments for China’s water governance. governance are as follows. Technology Legislative The technical instruments for China’s water governance The water governance system can be adjusted and include water resource development and utilization managed through legislation and the justice system. technologies, water pollution control and regulation The instruments of legislation include preparation and technologies, water-saving technologies, water revision of water laws and regulations to strengthen ecological restoration technologies, and water-related the legal basis for water governance. The instruments disaster control and management technologies. of justice include improvement of the administration by laws, penalties for water-related illegal activities, strict prohibition of the denial of justice, and improvement to Conclusions and Suggestions justice procedures. The instruments of supervisions include Policy Issues supervision of the enforcement of laws and regulations and prohibition of the abuse of laws and regulations. China’s short-term water policy issues include the irrational water pricing mechanism, which fails to sufficiently reflect the true situation of water shortage Administrative and water supply costs; the low water resource fee The administrative instruments for water governance and irregular fee collection methods; and the cost include restrictive standards or indicators, instructions, of pollution control and regulation, which is higher 104 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — THEMATIC REPORT than the cost of pollution discharge and leads to the application of new technologies to enhance the difficulties in reducing pollution discharge. Issues also capability of water environmental management. include the lack of the following: a water ecological The third part of the high-level design is to strengthen monitor and evaluation mechanism, an investment water ecology protection and restoration. The tasks mechanism and an ecological compensation include establishment of a water ecology spatial mechanism for water ecological conservation and protection system; definition of the red lines for restoration, a social participation mechanism for water water ecology protection; establishment of water ecological conservation and restoration, a rational ecology management; establishment of an evaluation investment mechanism in water sectors, and an system for water ecology management; reform and efficient mechanism to address water conflicts. improvement of the ecological compensation system, especially for the water source areas, critical wetlands, Policy Suggestions key lakes, and reservoirs; establishment of a stable and variable financial investment system; establishment Gradual, Stage-Based Improvement of ecosystem protection mechanisms according to In the short term, it is important to establish a powerful the different ecological properties and needs; and water decision-making and coordination mechanism enhancement of public concern for ecology protection to synchronize various water governance activities and restoration. and entities. The reform will improve the coordination The fourth part of the hig-level design is to promote and management of issues related to water resources, reform of water-related infrastructure management water ecology, and the water environment. In the long and the investment and financing mechanism. The term, it is critical to promote the reform and integration tasks include improvement of the investment and of water governance entities, to reduce the costs of financing mechanism of water-related infrastructure water policy coordination, and to align with long-term construction, expansion of financing sources, water governance reform planning. enhancement of reform of the water-related infrastructure management mechanism, clarification Embedded Top-level Institutional Design of the rights and responsibilities of the water resource management and administration bureaus and the The first part of the high-level design is to enhance water-related infrastructure management departments, the capacity of water resource management. The establishment of a differentiated management tasks include improvement of the water governance mechanism according to the categories of water-related capability to strengthen water resource feasibility infrastructure management departments, promotion of evaluation at project, regional, and planning levels the separation between operation and administration, to act according to local water resources capacity; and changes from the construction-focused method to continue reform of the water pricing mechanism a management-focused method. to attain hierarchical pricing based on whole-cost accounting; improvement of the collection standards of The fifth part of the hig-level design is to improve the water resource fees and promotion of the adjustment management of water conflicts. The tasks include the mechanism for water resource fees and for the shift prevention-based mechanism and the combination from water resource fees to a water tax; improvement of prevention and mediation, enhancement of the of the institutional capacity for the establishment of a mediation mechanism and the internal coordinating water-saving society; and strict implementation of a mechanism for water conflicts in different areas, water withdrawal permit system. capacity building for the officers who mediate the conflicts, improvement of the law consciousness of The second part of the high-level design is to water users through public education, and guidance strengthen water environmental management. The to help water users express their interests rationally tasks include raising of government focus on water and legally so that they can deal with the conflicts environment governance and consideration of the efficiently. In addition, it is important to establish a water environment quality indicators as the critical regular communication mechanism to coordinate and parts of local government assessment, implementation negotiate water-related issues between regions and of integrated water and environmental management countries. using various approaches, enhancement of the standards for the pollution discharge fee, promotion of market-oriented reform of wastewater treatment Strong Institutional Mechanism enterprises, sustainability of wastewater treatment The first task in strengthening the institutional enterprise operation, encouragement of third-party mechanism to promote institutional reform is to participation in environmental management, and include water resource development, utilization, 105 conservation, and protection, as well as water water governance processes. The second task is to environmental protection and governance, water generate incentives to encourage market-oriented ecological protection and governance, water ecology entities to participate into water governance processes. protection, and restoration, in the government The third task is to promote the trading system in the evaluation system. The second task is to establish water sector, such as the establishment of water rights a rational monitoring system according to the trading, to fully apply the advantages of the market institutional capacity and system. For example, the mechanism in resource allocation. establishment of a vertical management mechanism can prevent irrational interventions and promote the Diversified Participation clarification of responsibilities. To address the issues of insufficient participation in The third task is to improve relevant laws and water governance by nongovernmental entities, it regulations and to establish a more stringent is critical to encourage society to participate into accountability system for every level of officials. The water governance processes, to establish a joint fourth task is to integrate different agencies to establish governance mechanism with diverse entities, to a joint supervision and law enforcement mechanism. make the shift from government management to The fifth task is to establish a system of reporting society management, to achieve the joint governance incentives to fully mobilize social organizations and mechanism, and to promote the transformation and encourage the public supervision. improvement of the water governance mechanism. Strong Market-Oriented Management Acknowledgments The first task in strengthening the application of The authors express their gratitude to the Advisory market-oriented methods in water management is Committee of China’s Water Governance for to establish an incentive system for advanced policy comments and suggestions. The authors also express mechanisms to encourage enterprises with advanced their gratitude to the World Bank for its support of management and technologies to participate into this study. Watershed A New Era of Water Governance in China — Thematic Report W19030